The Biofuel Subsidy Scams

Wolf Richter's picture

Wolf Richter

Corporate subsidies, in an era of fiscal-cliff attacks on Social Security and Medicare, have dodged attention despite their magnitude and absurdity. Take the renewable-fuels subsidy ecosystem—and a train of tankers filled with biodiesel that shuttled back and forth across the border between Sarnia, Ontario, and Port Huron, Michigan, twelve times, without unloading its cargo. It generated millions of dollars in profits.

The mystery train was an outgrowth of the EPA’s Renewable Fuel Standard mandate that requires oil companies to blend (subsidized) biofuels with (subsidized) fossil fuels—or alternatively, purchase Renewable Identification Numbers, or RINs, as offsets.

Each RIN is a serial number for a batch of biofuel, such as biodiesel or ethanol. RINs are generated when the biofuel is produced or imported. Under the mandate, oil companies must blend 1 billion gallons of biodiesel a year into the fuel stream. Each refiner’s contribution is determined by its market share. If a refiner doesn’t want to comply, it can instead buy RIN credits from biodiesel producers. Hence, a $2 billion market for biodiesel RIN credits, policed by the ever so vigilant EPA. But RIN credits can be traded independently from the batches of biofuel that generated them. And this has opened up some opportunities.

Last year, Clean Green Fuels in Maryland was accused of selling 32 million fake biodiesel RIN credits to oil companies and brokers. In June 2012, CEO Rodney Hailey was convicted of wire fraud, money laundering, and of violating the Clean Air Act.

Absolute Fuels in Texas, was sent an EPA Notice of Violation in February this year. On July 19, owner Jeffrey David Gunselman was arrested for having allegedly created on his computer more than $50 million in RIN credits that he then sold. He didn’t even have the facilities to produce biodiesel. Earlier this month, he pleaded guilty to a laundry list of charges and is contemplating a maximum sentence of $20 million in fines and 1,268 years in the hoosegow.

Another Texas company, Green Diesel, received a Notice of Violation on April 30. The issue: 60 million fake RINs. By then, CEO Philip Rivkin had apparently skedaddled to Europe, out of harm’s way. 

Buyers of these credits got tangled up as well: “30 refiners settled with the EPA without admitting wrongdoing.” The usual suspects. Exxon would pay a fine of $165,000; ConocoPhillips $250,000, and BP $350,000. They’d also have to buy real RINs to replace the fake ones. The chaos in the RIN market prompted the House Energy and Commerce Oversight Subcommittee to hold hearings.

But a small outfit in Toronto, Bioversel Trading Inc., was particularly resourceful in milking the RIN system—and may not have done anything illegal, according to an excellent investigative series by CBC News. Bioversel hired Canadian National Railways (CN) to shuttle the same trainload of biodiesel twelve times across the US-Canadian border without unloading the cargo. All in the second half of June, 2010. For $2.6 million.

To generate RINs from importing biodiesel into the US, ownership of each trainload was transferred to Bioversel’s US partner, Verdeo, which then, rather than selling the biodiesel in the US, exported it back to Canada. But by exporting the biodiesel, Verdeo would have been required to “retire” the associated RINs, instead of being able to sell them. So Verdeo retired ethanol RINs instead, which cost only a fraction. The difference, less the cost of transportation back and forth, was profit.

It might have remained under wraps. But the “importer of record,” Northern Biodiesel of Ontario, NY, found out that the same rail cars were being shuttled back and forth and generated new RINs each time they came into the US; something was fishy. So the owner blew the whistle.

CBC News contacted the EPA to get some clarity, but the agency refused to comment. And the railroad? Didn’t they have a clue? Nope. “As required by law, CN discharged its common carrier obligation regarding these biodiesel shipments,” spokesman Mark Hallman wrote to CBC News. “CN is not aware of any pending investigation of an alleged fraud. CN has and will continue to co-operate fully with....” etc. etc.

Alas, CBC News had obtained a copy of an internal CN email, dated June 14, 2010, sent by Teresa Edwards, CN’s Sarnia transportation manager. In addition to some technical details, it included these priceless words: “It will be the same cars flipping back and forth and the product will stay on the car. Target is to get at least 25 flips across the border and back by June 30.” And a word of corporate encouragement: “This move has the potential to make a lot of money for CN so need everyone’s assistance to maximize the number of trips we make and ensure that it all moves smooth.”

In a follow-up email, dated June 28, 2010, of which CBC News also obtained a copy, Edwards wrote: “The Bioversal move back and forth across the border at Sarnia has now completed. Records show that we moved 1984 cars total.... This equates to approximately 2.6 million dollars of revenue....”

Though the Canada Border Services Agency and the EPA are investigating, CBC News emphasized that it “has found no evidence Bioversel or its partners broke any laws.” Apparently, regulations at the time permitted importing biofuels to generate RIN credits, re-export the fuel, retire cheaper ethanol credits instead of biodiesel credits, and laugh all the way to the bank. A perfect example of how huge corporate welfare programs, such as fuel subsidies, throw off unexpected crumbs in surprising directions.

Another investigation, this one into the potentially deadly industry practice of mechanical tenderization of beef, has turned into a nightmare for steak lovers. The risks have been known since at least 2003. Yet the industry resists even the most basic labeling requirement that would save lives. Read.... The Beef Industry’s Deadly Secret: “Blading” and “Needling” 

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Flakmeister's picture

Bad policy, bad regulations and someone figuring how to game the system, somehow I am not suprised....

KingTut's picture

Plants appear to grow out of nothing, making bio fuels seem almost free.  However, plants are really solar energy collectors, that convert solar energy into fuel (sugar) instead of electricity.  Unfortunately, they are not very efficient, converting only 1-2% of the solar energy into fuel energy.  The reason for this is pretty simple.  A plants' job is not to store energy, but to grow and reproduce; that is, to make more plant.  This requires the creation of Information (perfectly constructed new plant material), at the expense of more entropy in the environment.  The entropy consumes the energy in an unusable form.

At 10% a solar PV cell is vastly more efficient than any plant.  Plus you don't need to cultivate, harvest and process the plant material.  You use the electricity directly, year after year with minimal maintenance.  Even if you were to convert the electricity to fuel, you would still have an efficiency of 5%, better than the very best algae bio-fuels, and MUCH less expensive to process.  Human energy systems will always out strip biological ones by a huge margin.

Joe Davola's picture

$2.6 million for that crap not to end up in the engine of my vehicles - cheap!

otto skorzeny's picture

you think anything is going to change with a-holes like Durbin and Grassley keeping the govt titty $ flowing to their favorite big farm lobbies?

Downtoolong's picture

It will be the same cars flipping back and forth and the product will stay on the car. ..This move has the potential to make a lot of money for CN so need everyone’s assistance to maximize the number of trips we make and ensure that it all moves smooth.

I believe people genuinely want to be good and not hurt each other. The problem is, we are so incredibly good at rationalizing and truly believing that whatever we do in our interest is good.

De minimus's picture

The truly bad among us, really do make up for the good, which is why you should never give them power. But we're beyond that now, the Rubicon has been crossed and there are those within who are waiting to pull down any barrier to victory. Lies and fear are their main weapons which have already been augmented by brutally, in all it's numerous forms.

It gets worst from here...

lamont cranston's picture

BTW, if you get one bad load of biodiesel, you contaminate all the fuel and the tank. We sell a large foodservice group that was getting huge amounts of bacterial sludge in their reefer (refrigerated trucks) saddle tanks, as weel as their underground tank system. Until they added the product we sell, they were getting a breakdown every other day. Took amonth to clear it up.

And it ain't cheap - $130/gallon to treat 10,000 gals. In their case, 80,000 gals of storage. And have to repeat it every 3 mionths.

This is a huge problem nationwide brought to you by your Department of Redundancy Department, er EPA...

Ralph Spoilsport's picture

Several gas stations around here used to sell ethanol-free gas but now they can't even get it. My 1984 Ford F-250 has the 300 cubic inch straight six. It got better mileage on ethanol-free gas and idled smoothly. If they increase the ethanol content to 15%, it's only going to mean I have to buy more gas and suffer worse performance. Ethanol keeps deteriorating the carburetor gaskets and floats in the truck and my old International Cub Cadet. I'm sure the EPA will be happy about this since they want these old dinosaurs off the road anyway.

SAT 800's picture

Biofuels=scam. therre you go. EPA=unsustainable anti-realistic insanity. At best bio-fuels represent a government bought by Agri-bus. At worst; tax-farming, and scamming. Note that the EPA, which is anti-real insanity personified came directly from the government buying votes from the green freaks/ global warming cultists. modern propaganda is really dangerous; because it works. By far the largest supporters of all the carbon tax and cap regulations now are the major oil companies; they have hundreds of lobbyists renting in Washington; because they know they can scam the shit out of any federal program that can get passed. It's very dangerous to start believing in non-reality; such as AGW; which is impossible; non-existent, and a 100% anti-scientific program of delusion and emotion; basically starting with cherry picking data in a climate modeling center bought and paid for by the UN. I notice Flakmeister is freaked out about a research paper documenting .15degree C per decade; or 1.5 degrees per century; using contaminated and falsified data sets, of course. Even if it were a true temperature record; which it is not; it's meaningless; there are no one century warming trends. 2010 is not 1.5 degrees warmer than 1910. It's just static. No one has any idea what the global temperature will be a hundred years from now; much less the climate. About the only thing you can say for sure it doesn't matter a rats ass if we burn up all the coal and oil or not.

nmewn's picture


"Edwards wrote: “The Bioversal move back and forth across the border at Sarnia has now completed. Records show that we moved 1984 cars total.... This equates to approximately 2.6 million dollars of revenue....”

The "unintended consequences" of national socialist policies and the pukes who promoted them.

Bicycle Repairman's picture

The consequences are, of course, not unintended.  Nobody wants to compete in a free market and everybody loves subsidies.  Government is always ready to make it happen.

The primary thing the USA needs to do is limit the size of government.  So we can get rid of onerous regulation?  So we can take the subsidies away from the "onerous regulation" crowd and take down the government erected barriers to the free market.

It isn't about taxes or spending, it's about the free market.

strangeglove's picture

Slush Fund Bitchez!

Bazza McKenzie's picture

So a market distortion created by bureaucrats and politicians to solve a non-problem has been gamed by someone to put money into their pocket instead of into the pockets the politicians and bureaucrats had intended to fill.  Shocking!

SAT 800's picture

It would have represented standard business in the state controlled madness of the Soviet Union; now it represents standard business in the state controlled madness of the US. Let;s make another 1,000 pages of regulations and then hire another 2,000 government employees to fail to oversee them. Didn't Obama want a smaller government; I thought that's what he said.

janus's picture

okay then, TD.   take away my outlet.  janus had plans.  

so, unto WB & is my dedication:

please allow me to introduce myself,


alex_g's picture

any post w/ the Stones in it gets a +1

SoundMoney45's picture

This is reminescent of the EU VAT refund tricks that netted someone over $5 Billion.  Clearly there are profit opportunities in socialism, they just don't have much to do with being productive.

EnslavethechildrenforBen's picture

Shocking that anyone would use the words "Banker" and "Scam" in the same sentance.

Harbanger's picture

Stop being a troll, the article said nothing about a banker scam.  It's about a renewable energy scam including the EPA.  Read the article,

"The mystery train was an outgrowth of the EPA’s Renewable Fuel Standard mandate that requires oil companies to blend (subsidized) biofuels with (subsidized) fossil fuels—or alternatively, purchase Renewable Identification Numbers, or RINs, as offsets."

Seer's picture

And the conductors of that mystery train were the politicians in the midwest.

I fucking worked long and hard against all this shit.  Fuckers on the Right looking to bag more money for their corporate farmers.  Fucking idiots on the Left thinking that "renewable" was going to save them.

Sorry, this shit has always bothered the fuck out of me.  So much so that I participated on a public panel on biofuels.  I was the ONLY one not looking to gain anything (and not being paid by anyone).  I had this "farmer" guy sit there and tell me he didn't care about the markets back "there," well, I jumped his shit.  I told the crowd that what they were looking at is having their local lands sold out to Big energy and Big Ag- this little ol farmer eventually wouldn't be able to compete and he'd be bought out by these big entities- a loss of control of local land, controlled by out-of-area/state corporations, just like it's done in third-world countries!

I don't much care for the EPA, but I believe more of the driving force comes from the politicians (with big Ag and energy).

This is exactly the kind of thing that Eric Sevareid was cautioning about when he wrote:

"The chief cause of problems is solutions."