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.
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.
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.
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.
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.
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 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.
Ethics nothwithstanding.
The EPA was issuing credits for importing biofuel.
So the company decided to ship fuel out of the country and back in to make it look like they were importing fuel, and therefore earn the credits.
Sorry, but that's fraud.
There's nothing here that is wrong about the EPAs program or behavior. They want renewal energy to be imported, and are offering a credit for that.
That this company is willing to misrepresent their goods to claim a credit they are not entitled to is not the EPAs fault.
That there was a glitch in the EPAs system does not entitle the company to take advantage.
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).
1) call up ez-pass and let them know
2) think "it's not my problem" and not let them know
3) decide to drive over the bridge more often
4) mention it to all your friends and suggest they drive over the bridge more often
5) strap your ez-pass transponder to a quadcopter and fly it in continual circles past the transponder reader.
I'm not sure where the line is, but somewhere between 3 and 5 is probably "fraudulent" behavior - at least according to my personal ethical standards (even #2 is clearly "wrong"), there's almost certainly a technical legal definition of "fraud" that applies somewhere along that line too.
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.
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.
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.
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."
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.
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.