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"Stop RIN Fraud Act" Introduced to Congress: Is It a Viable Biofuels Solution?

Legislation was introduced Thursday in the House of Representatives that would give the Environmental Protection Agency (EPA) the authority to accredit third parties to certify Renewable Identification Numbers (RIN) used to buy and trade renewable fuels, including biodiesel and ethanol.

H.R. 6444, dramatically titled the “Stop RIN Fraud Act” by its sponsors, Reps. Pete Olson (R-TX) and Marsha Blackburn (R-TN), aims to stabilize the market for smaller producers that have been negatively impacted by three cases of RIN fraud uncovered since the end of 2011.  

The RIN program was set up to allow fuel producers and refiners to comply with the Renewable Fuel Standard (RFS), which requires them to blend a certain amount of renewable fuel into petroleum stocks every year.  Each gallon of renewable fuel is assigned a RIN, and the RINs are traded between companies to meet their obligations. Obligated parties can demonstrate compliance either by acquiring the required volumes of renewable fuels together with their associated RINs or by acquiring the RINs without the associated fuel.

The ability to disassociate a RIN from the product was cited by at least one biofuels industry executive cited in testimony as the likely source of the fraud. It was instituted in response to requests from refiners for flexibility and to implement the statutory provision for a credit program, said Byron Bunker, the EPA’s Acting Compliance Division Director of the Office of Transportation and Air Quality in the Office of Air and Radiation, in congressional testimony in July.

The EPA also worked with refiners and renewable fuel producers to develop its EPA Moderated Transaction System (EMTS) a centralized, electronic system that supports real-time submission of RIN transactions (approximately 20,000 per day), but does not provide any certification of their validity. Instead, the program was established from day one as a “buyer beware” system, as the agency did not have the resources to police every RIN issued, says Ben Evans, spokesman for the National Biodiesel Board. 

From November 2011 through April 2012, the EPA cited three companies, Clean Green Fuels, LLC, in Maryland, Absolute Fuels LLC and Green Diesel LLC, both in Texas, with violations of the Renewable Fuel Standard, for selling a total of 140 million RINs that had no associated fuel production.  Because the offending RINs could not be used to fulfill RFS obligations, the EPA had to issue Notices of Violations (NOV) to 33 companies that purchased them, along with civil penalties.

The EPA noted that 31 of 33 companies that had to retire invalid RINs agreed to settle with EPA, paying “modest” civil penalties for alleged RFS violations.

Reps. Olson and Blackburn characterize the fraud as “rampant,” saying the 140 million represent between 5% and 12% of the “current” biodiesel RIN market. The NBB, however, maintains that the fraud represents no more than 1% of all RINs in all RFS sectors, including ethanol, in 2011, and only about 6% of all 2011 biodiesel RINs. 

Melissa Kelly, spokeswoman for Rep. Olson, says the legislators believe that the EPA has the resources to certify third parties, “given that the EPA has indicated they have already developed a ‘general framework’ for a proposed regulation that would include a Quality Assurance Program, creating an `affirmative defense’ for parties who find they are holding invalid or fraudulent RINs. Once a RIN has been certified by EPA or a third party, it would be considered valid in perpetuity. Thus, EPA would be taking full responsibility for the RIN market it created — truly strengthening the program.”

The NBB opposes the legislation, says Evans, believing it “would remove all responsibility for due diligence from petroleum refiners to verify RINs, which we believe could create new potential for fraud.”  He added that the legislation has a “low” probability of passing.

Rather, he said, the NBB supports the EPA’s efforts to update the regulation and has partnered with Louisville, KY-based Genscape Inc. as one provider of a RIN auditing program called the RIN Integrity Network.  Evans says NBB partnered with Genscape after its RIN Integrity Task Force determined that a real-time monitoring program, rather than just a periodic audit program, was the most effective way to eliminate fraud and restore liquidity and confidence to the RIN market.  “Genscape was and still is the only real-time monitoring program,” he says, although other RIN auditing programs exist, including those from EcoEngineers, Murex, EM Biofuels, and Frazier Barnes & Associates.

Susan Olson, VP, of analytical research & development at Genscape, says approximately 16 biofuel producers, who produce between 1 million and 30 million RINs per year, are on its network dashboard. “We have helped them isolate some small issues they’ve had with compliance, but there is definitely a wait and see attitude to see what the EPA is going to do.” 

Lead image: Fraud dictionary via Shutterstock

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