EPA Releases Green Diesel Notice of Violation

Yesterday the EPA released the third major Notice of Violation ("NOV") against a biofuel producer in the past six months under the Renewable Fuel Standard ("RFS"). The NOV states that EPA has determined that Green Diesel, LLC of Houston, Texas, generated 60,034,033 invalid Renewable Identification Numbers (“RINs’) with a current market value of perhaps $85 million. Coming on the heels of 31 settlement agreements relating to the Clean Green Diesel and Absolute Fuels RINs, this NOV is likely to trigger immediate market reaction. The EPA has been enforcing invalid RIN cases first against the RIN generator then subsequently against the obligated party, i.e., the company that uses the RINs for compliance with RFS. Obligated parties under the RFS are petroleum refiners and importers in the U.S. About a month after the Clean Green Fuel filing, the EPA filed NOVs against the obligated parties. It remains to be seen whether EPA will do so again. The agency may instead rely upon its past actions and its recently released Interim Enforcement Response Policy to motivate corrections by obligated parties.

Some market participants have criticized the EPA for their managing of the RFS program and questioned the RFS program itself. In response, the biofuel industry and particularly the National Biodiesel Board have taken significant steps to address the validity issues. While there is significant time delay as many of the alleged activities date back to 2010, it appears that the EPA enforcement activities have motivated substantial due diligence activities that will serve the RFS program participants well in future years. The immediate challenge is in addressing the new Green Diesel NOV and the resulting contractual implications for market participants who transacted in these RINs. The rapid growth in the value of the RIN market has certainly presented substantial challenges. Nonetheless, private market responses to date suggest that the resourceful biofuel and petroleum industries can weather these storms and ultimately make the RFS program more effective toward its goals of reducing U.S. dependence on foreign oil imports and reducing GHG emissions.

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Anne Steckel - May 7, 2012 12:26 PM

Thanks for the post, Graham. As the biodiesel trade association, the National Biodiesel Board is pleased to see the EPA continue these enforcement actions so that the handful of bad actors who have disrupted the biodiesel marketplace are removed from the system and punished. If these allegations are true, this company has committed a crime and we urge the federal government to prosecute that crime to the fullest extent of the law.
These are serious allegations that are causing disruptions in the biodiesel and petroleum industries. However, it’s important to remember that these are isolated cases and that the vast majority of biodiesel producers are honest companies producing a great product. Overall, the Renewable Fuel Standard is working just as Congress intended to diversify our energy supplies and create American jobs – as demonstrated last year when the biodiesel industry produced a record of more than 1 billion gallons of fuel and supported more than 39,000 jobs.
The industry has anticipated that there would be additional RIN cases for some time now, and we will continue to work with the petroleum sector and EPA to rid the marketplace of bad actors. Strong enforcement, along with our industry’s ongoing RIN Integrity efforts, will ensure that this kind of thing doesn’t happen in the future. NBB’s RIN Integrity Task Force already has launched a comprehensive auditing and real-time monitoring program that will give the market a great deal of confidence in any biodiesel producer that is participating in the program. – Anne Steckel, Vice President of Federal Affairs, National Biodiesel Board

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