What problem did the EPA create exactly? They created a rule that the company disagreed with? That does not give them a right to break it. That's not how the law works.
Err...the EPA didn't create a law that the company disagreed with. They created a regulation that was designed to incentivise the importation of renewable fuels.
Someone at Bioversal Trading was clever enough to realize that they could make more money gaming this regulation then actually selling their cargo. Therefore, they ran the train back and forth a dozen times and wracked up money from the Government.
Dirty? Yeah. Fraudulent? Potentially, depending on how the regulation was written.
If anything, it speaks to the danger of hidden incentives in otherwise innocent-looking regulations.
>If anything, it speaks to the danger of hidden incentives in otherwise innocent-looking regulations.
That's like saying, there should be no lower tax brackets than 39% because I can lie and say I made less money than I actually did... speaks to the danger of hidden incentives in the tax code.
Well it does. The more complex the code the more ways there are to legally avoid its intent. Extreme example: if we had one tax bracket and no exemptions or deductions, there would be little anyone could do to avoid taxes other than literally earn less money.
His point was that objecting to a piece of legislation on the basis that some people will break the law is a pretty vacuous objection. Given one tax bracket or 200, people can lie to reduce their taxes.
This, of course, is not an interesting or useful critique of tax policy, just as what this company did in this case (fraudulently manipulate RIN credit retirements such that the train load was simultaneously classed as containing credit-valuable biodeasel and credit-worthless ethanol depending on whether or not the train was pointing North) is a vacuous critique of the EPA.
Noting that people will break a law is a vacuous criticism of said law. Noting that a law will make it easier for people to break the law (or take advantage of it) is certainly not.
Indeed, I'd argue that any analysis of the utility of a new law that doesn't take added opportunities for fraud into account (alongside the other negative effects of adding complexity) is simply worthless.
If anything, it speaks to the danger of hidden incentives in otherwise innocent-looking regulations.
Yep. Writing regulations is like writing code. In anything nontrivial, there are a lot of nonobvious edge cases that never occur to the writer until they bite him in the rear. And just like code, some of these sneak through even rigorous review and testing.
The hilarious thing is that upon this they will require that the fuel be loaded/unloaded at which point they will pay someone to unload it into a common pool and then reload 'different' biofuel from that common pool.
The EPA was the one issuing credits, apparently against its own rules. That is arbitrage of something with zero cost and greater-than-zero value in the market, not fraud. There is no "protest" against this rule evident in the article, etc.
Both the Canada Border Services Agency and the US EPA have launched investigations into the possibility of fraud, although the companies claim that the practice was totally legal.
So, according to the article, there is no evidence that there was fraud. But there is apparently a case of poorly designed or executed issuance procedures for these credits.
Also, the idea of the credits is a little odd. To promote the "measurement" of biofuels? Well, they are doing that...so, nobody is doing anything (evidently) against the policy intentions. So, unless there is some form of un-evidenced criminality...this looks like bad rules/management...more than anything else.
Well, bringing the same fuel load across the border over and over again but claiming a credit for it each time as if it were a different load would be misrepresentation.
Update from the CBC story: Once "imported" to a company capable of generating RINs, ownership of the biodiesel was transferred to Bioversel's American partner company, Verdeo, and then exported back to Canada. RINs must be "retired" once the fuel is exported from the U.S., but Bioversel says Verdeo retired ethanol RINs, worth pennies, instead of the more valuable biodiesel RINs. Bioversel claims this was all perfectly legal.
So basically Verdeo was lying to the EPA by claiming it was exporting ethanol rather than biodiesel. I would not like to be the person trying to explain to a court why that should be considered legal.
So basically Verdeo was lying to the EPA by claiming it was exporting ethanol rather than biodiesel.
Since the biodiesel in question actually is ethanol, that was properly purchased in the USA, there is no lie.
I am sure that the same situation happens by accident all of the time. When you buy ethanol you do not normally inquire as to whether it is biodiesel, even though a large fraction of it is. And if that ethanol is exported, you report it as ethanol because it is, and you cannot generally be expected to know whether it is biodiesel.
In this specific case Verdeo was presumably aware that they were exporting biodiesel (though there might be a lack of paperwork acknowledging that it was). However they believe that the regulations do not cover this case, and given that they had lawyers examining the regulations first, I see no particular reason to disbelieve them.
You may think it is ridiculous. But it is no more ridiculous than creating a legal distinction with real monetary value between two batches of identical chemicals. Yet that is exactly the distinction between corn ethanol and ethanol made from some other source.
Biodiesel and ethanol are not chemically identical. Ethanol is an alcohol, biodiesel is an ester (a compound of a fat molecule aka a lipid with alcohol). I'm no chemist, but I'm pretty sure you can't just pour ethanol into a diesel vehicle and expect it to function properly.
I have not researched the EPAs classification rules, so possibly there was scope for administrative confusion. But given that Verdeo managed to track the railcar in question well enough to safeguard their property interest and claim the import credits, surely they must have been aware that it was coming on the same railcar every time, a coincidence which strains belief.
As for the last point, the distinction is not between two batches of identical chemical, it's between two different methods of production. I don't care for ethanol subsidies at all because they distort the market in pernicious ways, but I think you're being rather disingenuous here. Given that the subsidy exists, it's entirely possible to develop a functional administrative framework for the correct allocation of the subsidy. Wasteful? Certainly - but that's a policy problem, not a legal one.
Ethanol and Biodiesel are NOT the same thing. At ALL.
Ethanol is grain alcohol. Biodiesel is (quoting wikipedia) "a vegetable oil- or animal fat-based diesel fuel consisting of long-chain alkyl (methyl, propyl or ethyl) esters"
When you buy ethanol you would certainly not expect to be delivered biodiesel and if you were, it would be unusable for your needs. You can't run an ethanol engine on [bio]diesel, and you can't run a diesel engine on ethanol.
Edit: my real point is, if they were reporting ethanol as biodiesel, or vice versa, it's hard to see how it could be a "mistake."
Each time the loaded train crossed the border the cargo earned its owner a certain amount of Renewable Identification Numbers (RINs), which were awarded by the US EPA to “promote and track production and importation of renewable fuels such as ethanol and biodiesel.” The RINs were supposed to be retired each time the shipment passed the border, but due to a glitch not all of them were. This enabled Bioversal to accumulate over 12 million RINs
edit:
The "glich" sounds to be with the EPA system. Its not clear if the problem is technical (like an ATM giving 40 for 20 requested withdrawl) or if the system did not differentiate between "crossing" and "production and importation", by design or specification. In any event, there's not much in the article that supports any forgery or false claim about the shipment's paperwork, etc. It was more that the EPA had no or poor controls. This latter case is a grey area between willful negligence (poor design of credit-issuance-proceedures) and potential fraud (unethical re-submission).
Just because you fail to lock your door does not authorize a burglar to come into your house and help himself to your stuff. You don't get to beg off responsibility by claiming the injured party made it too easy for you to help yourself.
This begs the question of precisely how the glitch was discovered and by whom. Did one of the involved businesses initially and accidentally enter the details from an old manifest and then realize that they still got credits? Or, perhaps one of the businesses submitted something twice and got credit for both.
When this is investigated by the EPA OIG (http://www.epa.gov/oig/), the chronology of the fault/exploit/fraud will be investigated along with the parties involved.
This may have involved bits of inside information such as company X hires former enforcement regulator Y from government agency Z who details the precise nature of how various governmental systems work. The possible permutations of how this situation evolved are many.
From my relatively uninformed perspective, the initial read of the article gives me the impression that this is an intentionally fraudulent scheme and criminal manipulation of the government program by the companies involved. However, I clearly do not have enough information to make such a determination.
You can bet the EPA OIG and their Canadian equivalent are going to try to get to the bottom of this.
That's a good point. If it was merely a mistake, then I'm sure the company would not mind the EPA adjusting the credit balance. After all, they did not intend benefit from the error.. they just wanted to ship their goods back and forth for some other reason.
The company is "importing" and re-"exporting" the same fuel over and over again, collecting a credit each time.
The credit is only intended for fuel that is imported into the US. Under international laws, import has a very specific meaning which the company does not appear to even come close to meeting (if the fuel never left the train). Thus, the fraud is that the company is repeatedly claiming the import credit for fuel it has never actually imported.
Someone at Bioversal Trading was clever enough to realize that they could make more money gaming this regulation then actually selling their cargo. Therefore, they ran the train back and forth a dozen times and wracked up money from the Government.
Dirty? Yeah. Fraudulent? Potentially, depending on how the regulation was written.
If anything, it speaks to the danger of hidden incentives in otherwise innocent-looking regulations.