A program that the US Environmental Protection Agency designed to help refiners and other obligated parties meet renewable fuel volume obligations under the federal Renewable Fuel Standard actually “provided the unintended framework for a new and persistent area of fraud,” a report released Sept. 20 by E&W Strategies charged.
The structure of the Renewable Identification Numbers (RIN) market, which was designed to create a more efficient trading system, ultimately opened the door for misconduct by creating an extended chain of custody for the environmental credits that often passed through brokers, said E&W Strategies Pres. Doug Parker, who was a special agent in EPA’s Criminal Investigation Division for 24 years, in a report commissioned by Valero Energy Corp.
That extended chain mandates that obligated parties—refiners and importers that essentially have no influence on the purchase and blending of renewable fuel—“make large-scale, and often unverifiable, purchases of these credits to meet their regulatory mandates,” Parker said in the report.
“In practical terms, those with no leverage to influence the blending of renewable fuel or to ensure its validity are required to purchase vast quantities of RINs from entities [that] have no responsibility to ensure the validity of the product, and can profit from the process by separating RINs for later sale at the blending point,” Parker said.
At the same time, EPA lacked resources to oversee the market, he said. “This combination, along with the inherent lack of transparency in this market, laid the ground for large-scale fraud in the RFS,” Parker said. RFS Strategies, which he leads, is part of the Washington-based Earth & Water Group, a strategic advisory organization based in Washington.
The American Petroleum Institute and American Fuel & Petrochemical Manufacturers have each called for major changes in the RINs program and other parts of the RFS that they believe Congress needs to reform substantially at least and possibly repeal outright. US crude-oil production increases and product demand declines since it was expanded as part of the 2007 Energy Independence and Security Act (EISA 2007) may have made certain portions of the RFS unnecessary and possibly counter-productive, they argue.
In the nearly 10 years since EISA 2007 expanded the RFS, which the 2005 Energy Policy Act established, the program has fallen short of its legislative goals and needs to be structurally revised, Parker said.
“As the former senior federal law enforcement officer who initiated and oversaw a nationwide effort aimed at investigating significant fraud in the program, I believe the existing regulatory and oversight framework will continue to provide opportunities for illegal exploitation and lead to competitive distortions in this sector,” Parker said.
“Additionally, maintaining the status quo will deprive the American public of the full energy, consumer, and environmental benefits the founding statutes sought to provide while continuing to expose US taxpayers to ongoing fraud,” Parker warned.
Contact Nick Snow at firstname.lastname@example.org.