Assurance in the biodiesel RIN market
More than a year ago Biodiesel Magazine was informed of shady deals in the biodiesel world when it came to RINs: railcars full of biodiesel crossing the international border, sitting, then those same carloads of biodiesel going back into Canada and crossing the border again with new RINs assigned to the same loads of fuel. This, our sources told us, happened repeatedly with the same tanker cars of product.
The fraudulent generation and sale of RINs came to a head late last year when the Maryland-based Clean Green Fuels LLC was busted for selling more than $9 million worth of fraudulent RINs. Texas-based Absolute Fuels was also caught selling $40 million in bad RINs.
Most biodiesel RINs are valid but these few exceptional, sensational cases have cast a shadow of doubt over the entire biodiesel industry. One option is to have the EPA take greater measures in enforcing these transactions, but with as much as EPA is involved already no one really wants the agency to further involve itself in these sorts of business transactions.
For these reasons, Lee Enterprises Consulting Group announced yesterday that it has developed a first-of-its-kind verification program to help restore confidence in the biodiesel RIN marketplace. The program will be available to biodiesel producers, blenders and obligated parties.
“After fraud was discovered in the industry, blenders and obligated parties need assurance,” says Lee Enterprises Consulting principal owner Wayne Lee, “and producers have to give them that assurance.”
The new program, called RIN 9000, will offer initial certification and ongoing RIN validation, Lee says.
Initial verification includes frontend RIN education, an onsite visit that involves the gathering of several essential documents, independent lab testing of fuel product, and backend consultations on any problems that might have been discovered during the verification process.
“The initial verification gives evidence that there is a real plant, and it’s producing ASTM-spec fuel,” Lee says. This is important because the fraudulent RINs mentioned above were sold from “producers” who didn’t have a plant and never produced a drop of fuel. For the education component, Lee says an expert instructs the producer about legitimate RIN creation, separation and transfer, and precise end-uses in order for RINs to be good. After the inspection, the visiting program agent then issues a report to the consulting group’s RIN experts. After careful review, provided everything is on the up and up, Diesels LLC, a company Lee’s group manages, will issue a certification of verification. Certified companies will be kept on a subscriptions list that obligated parties can choose to purchase, which will provide assurance that whichever companies they are buying product from are legitimate, verified RIN producers.
Assuming everything at the plant is alright, the initial verification costs a flat fee of $5,000, plus lab testing and travel expenses for the plant visit.
The second part of the program, after the initial process, is ongoing verification. On a monthly basis tickets will be matched to RINs to validate on a continual basis that transactions are legitimate. Lee says the cost of this ongoing verification will be on a per-RIN basis on the order of a fraction of a penny per RIN, up to a penny per RIN depending on the size of the RIN block.
“We anticipate the program to become the industry standard,” Lee says, adding that it will provide a safe place to buy RINs.
There are two ways the program will likely be used. The first is the blender or obligated party would say to a producer from which they intend to buy biodiesel and/or RINs, “Let me in your plant so we can say ‘okay,’ or we won’t buy from you.”
The second way is that producers will initiate participation in the program because they are proactive.
Whoever pays for the enrollment in the program, Lee says, might be able to adjust the price of RINs to compensate. A producer may be able to offer a slightly higher price for their RINs or, conversely, a blender who pays for the program to ensure compliance may require a producer to sell them at a modest discount.
While some large producers may have their own RIN verification programs, medium-sized and smaller plants could benefit in, one, being able to sell their RINs, and two, being able to do so in a timely fashion. “We’ve heard of instances where purchasers on EMTS (EPA’s moderated transaction system) have been blocking certain plants, or blocking plants wholesale, and those producers who are blocked may not even know it, or can’t figure out why no one is purchasing their RINs,” Lee says.
And if small producers are concerned about any additional costs, Lee says, “Okay, economics aren’t so good for smaller plants—we feel your pain. But the industry has a RIN problem that has to be dealt with.” The notion is that if small producers don’t do something to assure purchasers that their RINs are valid, they may eventually go out of business, leaving only the big biodiesel producers in business—and no one in the industry wants that scenario to play out.
Of the defrauders who were busted late last year, Lee says, “Had we been monitoring those companies, we would have noticed pretty early on that something was not right, documents that we would require they wouldn’t be able to supply because those documents can’t be faked.”