Who Is Chuck Grassley’s Mafia Don?

Over the last few weeks and months, Senator Grassley and his paymasters in the biofuel industry created a lot of sound and fury about an eminently reasonable proposal from the Environmental Protection Agency (EPA). Namely, matching the biodiesel mandate in the Renewable Fuel Standard (RFS) more closely to the amount of biodiesel actually produced in the United States. This minor proposed adjustment to the federal biodiesel mandate prompted howls of anguish from Big Ethanol and their senators, who refuse to countenance any change to their special interest deal whereby the federal government requires consumers to purchase their product. The complaints escalated to threats from a few Midwestern senators to retaliate against the administration should any alteration be made to Big Ethanol’s government gravy train—U.S. senators effectively acting as the enforcers of the ethanol mafia.

The RFS mandates that certain levels of biofuels be mixed into the nation’s fuel supply. However, the mandate is expressed in volumes rather than percentages, with the mandated volumes ratcheting up every year. These volumes increase even if the United States does not actually produce enough of the products to meet the mandate. In the case of biodiesel, last year about 45% of the 2 billion gallons of mandated biodiesel had to be imported, mostly from Argentina. The resulting domestic shortfalls have created a situation that, according to the former head of the EPA Criminal Investigation Division, is ripe for fraud, particularly in the biodiesel market.

The key opening for this fraud is the compliance mechanism for the RFS, which is known as the Renewable Identification Number (RIN). A RIN is assigned to every unit of biofuel produced, but it can be detached from the physical fuel and traded and sold like a financial commodity. Refiners are required to accumulate enough RINs to meet their share of the RFS mandate, whether by purchasing biofuel with RINs attached or RINs traded in the opaque and poorly regulated secondary market.

The market for RINs has been fertile ground for fraudsters. The EPA keeps a running tally of the fraud that it has discovered. In the last three-plus years, the EPA has taken enforcement actions involving more than 429 million fake RINs with a market value of over $325 million. And keep in mind, that is just the ones they managed to catch and convict.

In one example of this massive fraud, extensively documented by Bloomberg last year, a con man named Philip Rivkin was indicted for selling more than 60 million fake RINs for at least $78 million, as well as illegally claiming another $21 million in biofuel tax credits. When an EPA inspector arrived at the site of his company, Green Diesel, he found a deserted facility with rusting equipment and disconnected pipes. Green Diesel never produced a single gallon of marketable biofuel.

The cost of this fraud is passed along directly to consumers in the form of higher fuel prices at the pump. According to the EPA, biodiesel costs between $1.36-$1.85 more for every gallon of petroleum diesel replaced. And don’t forget that much of that biodiesel is imported. Every good that is transported by truck in the United States is made more expensive by this biodiesel mandate, all for the sake of enriching criminals, foreign companies and Big Ethanol special interests.

In response to all this, the EPA proposed just a minor adjustment to the biodiesel mandate, no more than 15%, to closer align with actual domestic production. A common sense argument that the federal government should not be mandating imports of foreign goods. But Senator Grassley among others declared this a betrayal and threatened to hold up nominees to the EPA. Last week, Secretary Pruitt sent the complaining senators a letter attempting to allay their concerns that he sought to rationalize the boondoggle program they are so attached to. While this letter gave the subsidy senators most of what they want for now, they may have shot themselves in the foot by getting the president and EPA administrator to intervene in an active rulemaking, setting up possible litigation in the future.

The key fact remains, though, that Sen. Grassley and his fellow subsidy senators moved themselves to this level of outrage not to protect consumers, not to reduce transportation costs, not to reduce imports. No, their fury was unleashed in defense of a government mandate that lines the pockets of criminals, foreign producers, and their Big Ethanol political backers. Would that the average American consumer had these kind of enforcers in Washington, D.C.