To try and artificially grow a domestic biofuels industry, the United States installed the Renewable Fuel Standard (RFS) in 2007, relying on a system of annually increasing mandates for the quantities of biofuels refiners blend into gasoline. The scheme was created under the Bush administration and dutifully expanded by the Obama administration—and it’s been an unmitigated policy disaster. The RFS has created an arena ripe for hucksters to fraudulently make millions of dollars, and Bloomberg has a long report on some of the most galling examples of these system-cheaters:
Per EPA rules, each gallon of ethanol or biodiesel produced is assigned a 38-digit number—a renewable identification number, or RIN—that travels with the product as it moves from producer to refiner to end user. Ethanol RINs generally remain fixed to their respective gallons throughout the process. But the EPA allows biodiesel makers to strip RINs off their product and sell them separately as tradable credits. Refiners who fall short of blending the statutory minimum of biodiesel into their refined products must buy RINs to make up the difference or pay penalties. […]
All an unscrupulous biofuel trader really needed in the early RIN years was a talent for Microsoft Excel. Over a phone or a computer, he’d negotiate with a refining company or a third-party broker to sell RINs at an agreed-upon price. Then he’d generate some numbers, send them over, and get paid. No fuel exchanged hands. And the onus was on buyers to make sure the numbers were associated with gallons of actual fuel; if the RINs proved fraudulent, the holder had to purchase new credits to replace phony ones. A man named Rodney Hailey sold $9 million in counterfeit RINs from his Maryland garage without even trying to make biodiesel. When EPA inspectors wanted to visit the plant he didn’t have, he told them he had recently removed all the equipment and sold it. When they asked who the buyer was, he said he couldn’t remember. He did send pictures of the plant before it was dismantled—but those turned out to be images he’d found on the internet. He was convicted in June 2012 of selling fraudulent RINs and is serving a 12 ½-year prison sentence.
It’s worth your time this weekend to go ahead and read the whole thing. It’s a quick overview of what the RFS actually is and how it’s been taken advantage of.
Fraud isn’t the only issue with America’s biofuels problem. The quota system has raised global food prices, starving the world’s poor and potentially inciting riots abroad. It has cost drivers billions of dollars (billions!), and maybe worst of all—it’s actually been bad for the environment.
Our biofuel boondoggle hits one of those rare policy sour spots, making very little sense from every angle and managing to frustrate every relevant stakeholder (excepting the corn industry). If Bloomberg’s story of the brazen fraud this artificial biofuels ecosystem has created makes you angry, well, it should. The sooner we end this farce, the better.