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What a Mess
America’s Biofuel Boondoggle Rife with Fraud

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.

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  • Pete

    Anything associated with government subsidies (giveaways) is loaded wit fraud — Mediaid, Food Stamps, etc. etc.

  • Josephbleau

    “The sooner we end this farce, the better.” Then add the line “; or the the system will become almost as fraudulent as Trump is.” Then it will be a true to pattern Mead article.

  • FriendlyGoat

    “managing to frustrate every relevant stakeholder (excepting the corn industry).”

    So, can “every relevant stakeholder” (together) beat Congressional representation from corn and ethanol-processing states—-or not?

    • mikekelley10

      Any time I ever heard the word “stakeholder”, there was a scam involved.

      • FriendlyGoat

        If we now know that ethanol is too expensive related to oil, is not particularly good for engines, tends to raise the world price of food corn, possibly consumes more energy to produce than it holds and is a profound hog of water, what’s the scam? The stakeholders are consumers and citizens. Do you not like them?

        • mikekelley10

          I have found that “stakeholder” is a term NGO’s, companies, and bureaucrats use when they are pretending to give a rat’s hind end about consumers/citizens. Ethanol is present in all but premium gas in my area now, so I have to pay extra for the premium. Two mechanics I trust have told me to avoid the stuff in my 2003 Mazda. It is also toxic to small engines in chain saws, lawnmowers, etc., so I avoid it. I can’t remember the last time our government did something that actually benefited us peons outside the Beltway.

          • FriendlyGoat

            This is the point. You, as owner of a Mazda and lawnmower, are a stakeholder. “The earth” is a stakeholder. Consumers of food grain in poor countries are stakeholders. None of them, except corn growers and ethanol processors themselves, are benefiting from the renewable fuel standard at this point. We need to end the ethanol in gasoline and it’s questionable whether Congress will EVER do it because there are a lot of states where corn is a big deal.

          • mikekelley10

            Our federal government at all levels could care less about us poor, dumb taxpayers, er, stakeholders.

          • FriendlyGoat

            However true that might be, this is not “the government”. It is corn state Congressmen which basically means Midwestern states, a somewhat right-of-center place and group. They like ethanol for corn demand, for corn price, and for land values.

  • John Dowd

    A la Trump this episode proves we are being governed by “Stupid People”. Either that or “Smart Crooks”. It’s probably the worst combination of both types of human beings.

  • klgmac

    Now that enlightened Progressive policies have fixed the healthcare system and brought peace to the Middle East, who can doubt their ability to control the temperature’s of the earth right down to the degree?

  • Fifty Ville

    I want my pre-ethanol mileage back!

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