Small and midsize biodiesel producers are struggling to sell renewable fuel credits in the wake of recent fraud allegations, which have made buyers skeptical of working with lesser-known firms.
A federal jury found a Maryland man guilty last month of selling $9 million worth of fraudulent renewable fuel credits to brokers and oil companies, which have since had to pay fines and purchase new credits.
The credits, known as Renewable Identification Numbers, or RINs, are used to track oil companies’ compliance with the federal Renewable Fuel Standard, which calls for using 36 billion gallons of biofuels by 2022.
The U.S. Environmental Protection Agency (EPA) reiterated in a Congressional hearing this week that it’s up to refiners and others to perform their own due diligence on credits they buy.
The response from industry, however, has simply been to avoid buying from all but the biggest and most well-known biodiesel producers, shutting many smaller players out of the market.
‘They just don’t want to deal with the little guys’
Since the fraud issue emerged last winter, Dave Walsh has had to go above and beyond to sell the credits from biodiesel his company produces in Mauston, Wisconsin, northwest of Madison.
Walsh BioFuels, which makes just over 1 million gallons a year from corn oil, hired a third-party auditor in April to review its operations and certify that its credits are legitimate. Even so, some refiners won’t buy them, and others demand a discount.
“I made the fuel. I sold the fuel. My RINs are just as good as ADM’s or Cargill’s, but [oil companies] won’t buy them,” Walsh said. “They just don’t want to deal with the little guys.”
Walsh estimates auditing services will cost the company between $20,000 and $30,000 per year. Meanwhile, he gets about 15 cents less per gallon from his credits than larger producers, he said.
Jeff Hove, vice president of the RIN Alliance, a Des Moines company that markets credits on behalf of 130 renewable fuel blenders, said buyers want quality assurance and the financial ability to stand behind credits. That’s why it’s much easier selling RINs from larger producers.
“If something were to go wrong, whoever gets stuck with that RIN knows that if they go over and knock on Cargill’s door, they’re going to resolve the issue quickly,” Hove said.
In short, they want to know there’s money to be had if someone needs to be sued.
The RIN Alliance hired a Des Moines engineering firm, EcoEngineers, to audit many of the smaller biodiesel producers in its network. Any producer that declines to give access is blacklisted from its system.
EcoEngineers, which specializes in helping biofuel producers comply with various federal and international regulations, has seen demand for its services grow alongside the fraud concerns. Managing Partner Shashi Menon said they’ve added two employees and now work with about 20 biofuel producers.
The first step is making sure a company has a facility fit for producing biofuel — something that didn’t exist in the Maryland fraud case. Next, they analyze the plant’s mass and energy balance.