RIN fraud

Earth Track Blog Post

1)  Biofuels:  More problems with renewable fuel compliance credits.  Remember back in July when it was discovered that investment banks were manipulating aluminum prices through an arcane and somewhat bizarre dance of trucks moving inventory to and fro among bank warehouses in Detroit?  Well, they've been at it again -- this time with Renewable Fuel Standards credits, which are traded as RINs, or "Renewable Indentification Numbers." Speculating on the credits, triggering a supply squeeze and price jump, seems to have been a central factor in price spikes of 20x over a six month period.   

This isn't the first problem to crop up in the subsidy-ridden biofuels markets.  There have been scams to run fuels across border to do a bit of blending ("splash and dash") in order to tap into large tax credits; and even counterfeiting of RINs themselves.  As I've noted earlier, if something acts like money, one needs to assume all of the bad things people try to do to enrich themselves and defraud others will come into play.  This type of gaming has happened in enough markets over enough time that ensuring market transparency and fraud-prevention rules are in place from the outset of new programs should be a top item on government policy maker's "must do before promulgation" check list.  That said, Valero Energy, quoted by the NYT as losing as much as $800 million from the RIN-squeeze, is a large and sophisticated company.  It ought to have been running a hedging program similar to what airlines do with aviation fuel.

2)  Biofuels:  More taxpayer losses in USDA's second sugar-to-fuel auction.  More fun with the nutty program that forces surplus sugar to be sold at a loss to biofuels producers to "avoid" taxpayer losses on sugar loan defaults, the subject of a blog post two weeks ago.  Front Range Energy, the winner of the first sugar auction, noted that they had only a week to respond to the solicitation and that this likely was a factor in having so few bidders.   They paid 6 cents per pound of sugar.  USDA promised to do better next time:

“Transportation, volume of sugar feedstock and other concerns appear to have limited bioenergy company participation,” the Agriculture Department said in its statement. “The USDA expects greater participation in FFP [Feedstock Flexibility Program] as these concerns are addressed.”

They must have meant the next, next time: Pacific Ethanol won the second action with a bid of only 4.1 cents per pound of surplus sugar, nearly a third lower than the price paid to USDA on its first auction.  Management noted that they expected "this purchase of sugar to significanly lower raw material costs..."

3)  Nuclear:  The US Export Import Bank offers more nuclear subsidies.  Export Credit Agencies such as Eximbank prop up exports by subsidizing the financing costs of risky projects or sales of large assets to risky countries.  In July, the Bank offered to provide subsidized loans for the $10 billion Temelin nuclear power project in the Czech Republic.  Terms:  25 years and a fixed interest rate of 3.5% -- pretty good for a nuclear reactor project.  The Prague Post notes that the guarantee could cover 40-50% of the project cost.  This would equate to about $4-5 billion. 

The financing is contingent on Westinghouse winning the bid -- Eximbank is about subsidies that help the US after all.  But the irony is that Westinghouse is no longer a US company, really.  Though still headquarted in Pennsylvania, and therefore generating some US jobs, the firm is 87% owned by Japan's Toshiba Corporation, 3% by Japan's IHI Corporation, and the remaining 10% by Kazatomprom, the national uranium company for the Republic of Kazakhstan.

4)  Nuclear:  National Journal (NJ) hypes small modular reactors.  Once it was clear that big nuclear reactor projects were not getting any banker love, the nuclear industry began scrambling for backup plans.  Small modular reactors (SMRs) have been one of them -- with proponents arguing that they are simpler, cheaper, easier, able to fit anywhere, and an all around good thing for the government to help them develop. 

The National Journal has unfortunately picked up the meme in its article "Small Reactors May be Nuclear Power's Future."  Ernest Moniz, the current Secretary of Energy in the US, hails from MIT, an institution long involved with nuclear research of all types and long in favor of government-supported nuclear power.  Nearly a half-billion dollars of federal money has been put into financing SMR construction, according to the NJ.  The National Journal lists economics as a main driver of the shift:  automated production, more standardization, less overhead for utilities.  But this goes against 50 years of engineering assessments that have sought to build ever-larger reactors to achieve economies of scale and lower costs per unit energy produced.  Other arguments put forth:  that new small reactors will be safer than the really old reactors still operating (though of course the older reactors will close on their own, and don't need to be replaced with new nukes); and that the US needs to keep subsidizing nuclear so we remain a big player in the industry and "have a voice in conversations about nuclear technology in the international arena."  On this last point, I would suspect our role as the world's military superpower might give us a similar "voice" regardless of whether we subsidize SMRs.  And, as we've seen time and again with nuclear issues, having a "voice" and having an impact are very different things.

5)  Nuclear:  Discussion on whether nuclear energy should get another layer of subsidies over at OurEnergyPolicy.org.  This website, founded by entrepreneur Yossie Hollander, often has interesting debates on energy-related topics, both common and arcane.  This question asks whether nuclear energy ought to get environmental subsidies because it is low carbon.  My response I'm sure will be a big surprise:  of course not.  Nuclear energy is one way to reduce our carbon footprint, but hardly the most cost-effective.  It may gain market share once carbon is priced, but it should not be assumed the big winner in a carbon-constrained world.

6)  Transitions:  Kerryn Lang and Chris Charles.  Best wishes to both Kerryn Lang and Chris Charles, who are leaving the Global Subsidies Initiative in Geneva after many years and much good work there.  Both are returning to their native New Zealand.  It has been fun working with them on a number of projects during their tenure.  And while I wish we were nearing completion on our project to transition away from environmentally-harmful subsidies around the world, the reality is that there may well be opportunities to work with these two in the future, wherever they happen to be residing.

7)  Solving problems when people cooperate.  Congratulations to Amy Larkin, formally of Greenpeace Solutions, on the publication of her new book, Environmental Debt: The Hidden Costs of a Changing Global Economy. It's a quick read, and full of examples of where cooperative engagement between the environmental community and top management of big firms has resulted in rapid and tangible environmental gains. It is very nice to see the successes every once in awhile.