Complicated Ethanol Program Makes Refiners the New Miners


Fraud, abuse of the RIN market is overlooked by Renewable Energy Standard loyalist lawmakers

A Wall Street Journal report shows an independent refinery in Pennsylvania has gone from spending $10 million in 2012 to $300 million in 2017 for renewable fuel credits required by the Environmental Protection Agency (EPA), causing a credit downgrade and layoffs to the company. 

Due to the exponential inflation, Philadelphia Energy Solutions, the 335,000-barrel-per-day refinery, laid off 70 employees and reduced spending in all areas. Other independent refiners, including Valero Energy Corp and Phillips 66, reported record low years, also citing regulatory burden as reasons for the hardship.

In less than a decade, the market for the credits, called Renewable Identification Numbers (RINs), has inflated an explosive rate, causing hardship to fuel refineries across the country. The companies who blend the fuels with ethanol sell the RINs to refiners, who must purchase and place them if their fuel is to enter the market. Since 2010, the RIN market has skyrocketed from less than $1 billion to about $15 billion. 

The credit price went down in February, only to increase by 200 percent this fall, causing the independent refineries to tighten their belts headed in the holidays. 

RINs are bought by refineries to prove to the Environmental Protection Agency (EPA) that the refinery is in compliance with the Renewable Fuel Standard (RFS). Under the RFS, fuel sold domestically must contain a certain threshold of renewable fuels. 

With minimal oversight at the EPA, the agency is becoming an easy target for fraud. In the last few years, there have been at least 8 major fraud cases involving RINs. 

One case of fraud involved a Maryland man who created a fake company, Clean Green Fuel. The fake biodiesel production company with a storage unit address managed to create 25 million fake RIN numbers and sold them to refiners, making $42 million. The EPA never inspected Clean Green – it was the new purchase of several luxury cars by neighbors that tipped others off. Clean Green Fuels made over $9 million in illegal profits. 

The man behind Clean Green Fuels, Rodney Hailey, faces up to 32 years in prison after being found guilty by a jury on 42 counts of wire fraud, only laundering, and violating the Clean Air Act. The jury deliberated for less than 90 minutes. 

The hardship caused by RINs to legitimate independent refineries is deja vu to those who followed the coal industry, watching the Department of Interior halt new leases for coal mining on public lands after the crash of the coal market and thousands of jobs lost after decades of increasing regulations. 

Thirty Democrats and a handful of Senators wrote President Trump begging him to not change the RFS, not acknowledging the rampant fraud and massive regulatory abuse, or the increased hardship on refineries caused by the exponential inflation of the RIN market. Trump said he wouldn’t touch the RFS, which is raising eyebrows in states like Pennsylvania, where unions supported the President’s campaign hoping for regulatory relief.

“I voted Donald Trump, I urged my members to vote for Donald Trump, and I urged them to ask their families and friends to vote for Donald Trump,” Ryan O’ Callaghan told the Wall Street Journal last month. 

O’ Callaghan, president of the United Steelworks Local 10-1 in Linwood, Penn., lent his and his followers’ support to Trump during the 2016 campaign. But now, O’ Callaghan says, “we’re left out in the cold.”

Meanwhile, three brothers in Indiana raked in $55 million in illegal profit by purchasing and re-selling fuel with RINs attached. The brothers and their New Jersey co-conspirators were caught in 2015 and made their mark on history as having committed one of the biggest securities fraud cases in Indiana history. 

The RIN market will continue to throw taxpayers and refiners through a loop unless the RFS is revised. With EPA “oversight,” American refinery workers are being laid off while the RINs are sold separately from produced fuel. 

RIN fraud has been committed similarly to the Indiana and Maryland cases in Texas, Nevada, Ohio, Pennsylvania, Florida, Georgia, and Washington. 

Not only does has market microcosm repeatedly allowed fraudulent companies to pop up and illegally profit, they waste taxpayer dollars by dipping into tax credits. 

EPA officials commented that they have increased enforcement efforts within the RIN market, and more oversight exists now than when Clean Green Fuels profited over $9 million. 

Clean Green Fuel’s now-imprisoned Hailey’s attorneys accused the EPA of lax oversight and loose regulation within the RIN market since it’s 2005 creation and 2007 expansion. 

“The EPA screwed up big time,” attorney Joseph Evans said. “The EPA has to blame Mr. Hailey because they have to answer to Congress about this.”

“It’s not the EPA’s fault that Hailey committed this crime,” Assistant U.S. Attorney Tonya N. Kelly said.