walter russell mead peter berger lilia shevtsova adam garfinkle andrew a. michta
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Biofuel Boondoggle
Ethanol: A Matryoshka Doll of Fraud

The EPA invalidated 33.5 million renewable fuel credits (RINs, for shorthand) on Wednesday for the simple reason that the company that sold the credits didn’t actually produce the fuel. The details can get confusing, but here’s the simple version: according to the 2007 Renewable Fuels Standard (RFS), US fuel refiners need to blend specific quotas of ethanol in to their products. The mandates for these biofuels have risen every year, to a point where many refiners are having trouble meeting them (gasoline with more than 10 percent ethanol has been shown to be harmful to engines, a phenomenon known as the “blend wall”). To comply with the RFS, refiners can buy up RINs from other firms that actually produced the ethanol, which in theory would keep incentivizing ethanol production while still giving refiners some flexibility. Unfortunately, as Bloomberg reports, the system is also ripe for fraud:

The U.S. Environmental Protection Agency said it has invalidated 33.5 million renewable-fuel credits sold by an Indiana company for biofuel it didn’t produce, the fourth time the agency has alleged fraud in the program.

The filing today follows fraud charges filed against the former owners of the Indiana-based E-Biofuels LLC in September. The U.S. Justice Department accused them of falsely claiming its products qualified under government incentives for renewable fuels.

The scammers in question were clearly enjoying themselves prior to getting caught, driving Ferraris, buying Picassos, and snatching up diamonds. This week’s move brings the total of invalidated RINs up to an eye-popping 173.5 million; the RINs voided on Wednesday were worth more than $13 million at today’s market rate.

But the RFS itself is an even bigger fraud than cons taking place within it. Ostensibly, the RFS was pushed through as a way to “green” our nation’s fuel, but most of the mandated ethanol comes from corn, a process that raises global food prices (starving the world’s poor and possibly inciting riots) and, incredibly, isn’t even green. It’s a ridiculous situation, and at this point few other than the producers of corn ethanol themselves are actually supporting these mandates. The EPA walked back its quotas for next year’s biofuels, and Congress, for its part, is working on ending the biofuel boondoggle. The sooner, the better.

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  • qet

    People should remember that the same government that gave us the ACA gave us this. Anyone who wants to know what the future will look like in a society that actively encourages its central government to “solve problems” should imagine a gallon of ethanol stamping on a human face–forever.

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