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EPA to Invalidate 30 Million Fuel Credits After Fraud

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Dec. 18 (Bloomberg) -- 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 action 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. At today’s value of about 40 cents each for biodiesel, the invalidated RINs would have been worth about $13.4 million.

The EPA move, which was posted on its website, may further roil the market for credits used by refiners such as Valero Corp. and Exxon Mobil Corp. to meet government renewable-fuel requirements. Before today’s action, the agency had said three companies produced a total of 140 million fraudulent Renewable Identification Numbers, or RINs.

“EPA unfortunately continues to hold obligated parties responsible for illegal activities perpetrated by biodiesel producers such as E-Biofuels,” Charles Drevna, the president of the American Fuel & Petrochemical Manufacturers, a Washington-based lobbying group, said in a statement. “The industry remains unfairly exposed to a system that actually penalizes the victim of fraud.”

Blending Mandate

Under U.S. law, refiners such as Exxon and Valero must blend ethanol or other biofuels into their fuels. EPA rules allow refiners to buy credits from other producers to fulfill their obligations in lieu of making the fuel themselves.

The market in credits for the cleaner fuel seized up last year after federal prosecutors accused Clean Green Fuels LLC of selling 32 million fraudulent certificates, and EPA forced refiners to pay fines for the fake renewable credits they held. A second company, Absolute Fuels LLC, was issued a notice of violation in February for allegedly selling 48 million bogus certificates.

In the fraud case involving a third company, Green Diesel LLC, the EPA reached administrative settlements with 39 companies including Exxon and Valero. In that case, for example, Exxon agreed to pay a penalty of $165,407, according to the settlement document posted on the EPA’s website.

New Oversight

After the first reports of fraud were discovered, the EPA developed a proposal to tighten oversight of the renewable fuels program, or RFS, and that regulation is set to be issued next year, the EPA said today in an e-mail.

“This fraud is disappointing for everyone, but it is important to remember that these are isolated cases from several years ago,” Ben Evans, a spokesman for the National Biodiesel Board, said in an e-mail. “Despite what RFS critics would like us to believe, they do not show that the RFS is broken any more than an isolated case of trading fraud shows the stock market is broken.”

A telephone listing for E-Biofuels LLC is disconnected. Thomas Farlow, a lawyer representing the former owners didn’t return a telephone message left today seeking comment.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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