The US Environmental Protection Agency may end up deeming more biodiesel renewable identification numbers (RINs) as invalid following federal investigations into two companies that allegedly sold RINS without producing the appropriate volumes of biodiesel, a lawyer familiar with the matter said Wednesday.
The companies -- Maryland-based Clean Green Fuels and Texas-based Absolute Fuels -- are accused of selling RINS without producing the commensurate biodiesel, following separate probes by the US Attorney's Office in Maryland and the US Attorney's Office for the Northern District of Texas.
According to the Lubbock Avalanche-Journal newspaper, citing federal affidavits, Absolute Fuels of Lubbock sold $40 million in RINs, representing over 36 million gallons of biodiesel.
Clean Green has been accused of selling $9 million in RINs, representing roughly 21.44 million gallons of biodiesel, according to the US Attorney in Maryland.
RINs are 38-digit numbers which are supposed to correspond with actual production of biodiesel fuel, and are used by companies to satisfy EPA obligations. Failure to meet these obligations can result in penalties.
While the EPA has notified companies who came into possession of RINS initially sold by Clean Green, it has not yet notified companies who had RINS sold by Absolute.
David McCullough is an attorney at Washington, DC law firm of Sutherland Asbill & Brennan, which represents a number of companies that received notice on Monday from the EPA that RINs initially sold by Clean Green Fuels were apparently fraudulent.
McCullough said in an interview that Absolute Fuels "is the next shoe to drop," and added be believed other companies would be investigated.
While McCullough expected the EPA to file notifications concerning Absolute, he said the notifications may not be issued anytime soon as the case is comparatively more complicated than Clean Green. That's because Absolute at one point actually did produce some biodiesel, he said.
"Some of these RINs may have been valid," McCullough said. The EPA will need to determine which RINS are not.
A delay could create more uncertainty in the RINs market, McCullough said, as obligated parties can only hold out so long before satisfying their annual biodiesel requirements.
"If you are an obligated party, you can carry a deficit into the next year," he said. "But not two years."
News that the EPA deemed Clean Green's RINs invalid caused prices for 2011 RINs on the spot market to jump Tuesday by 22 cents to $1.40/RIN. By Wednesday morning, 2011 RINs were being offered as high as $1.48/RIN.
The EPA has declined comment on Absolute Fuels, and instead referred questions to the US Attorney in North Texas.
"EPA will continue to work with the regulated community to provide general compliance assistance and address concerns, such as dealing with invalid RINs, as issues arise," the agency said in a statement.
McCullough blamed a lax approval process at the EPA for creating opportunities where RINS could be moved fraudulently.
"The EPA was inundated with hundreds of applications from biofuels producers," he said, at around the time that the EPA's regulations took effect in July 2010. "EPA accepted the applications rather than approved them."
He added that EPA is supposedly now taking longer to review applications, noting an applicant must submit a third-party engineering report to certify that a biodiesel facility does in fact exist.
