Well, given that the buyers bought just the numbers and not did not go to the authorities immediately it would seem that everybody in the deal was happy except for the EPA.

If you make it so that a number is assigned to something liquid that is as fungible as can be then you really can't claim surprise if someone then decides to short-circuit the whole thing and bypass the manufacturing step.

Think of it as an optimization. After all it seems the numbers where the valuable bit, the fuel was worthless in comparison.

> "In return for the hollow credits, ConocoPhillips paid Green Diesel $18 million, according to court documents. Shell got stung for $14.4 million, BP for $13.6 million, Marathon Oil for $12.4 million, Exxon $1.2 million. All these companies also were forced to buy new RINs to replace Rivkin’s phony ones."

> Federal agents were watching, as was Houston attorney David Fettner. He’d been appointed by a court to find and seize Rivkin’s property on behalf of commodities trader VicNRG, which had sued Green Diesel and other Rivkin companies for selling it $3.8 million in bogus RINs. “Rivkin left a trail of unhappy people behind him,” he says.

Doesn't seem like everyone else was happy

> Well, given that the buyers bought just the numbers and not did not go to the authorities immediately it would seem that everybody in the deal was happy except for the EPA.

You'd be happy buying $1000 from someone for only $100, until you discovered the money was essentially worthless (counterfeit)

They should have bought FUEL, not RINs.

That's a bit like saying a ripped-off investor should have bought stock, not mutual funds.

These companies needed the RINs, not the fuel. If they had bought the fuel with the RINs they could have been assured the RINs were legitimate, sure. But that has all kinds of associated costs (quality control, finding buyers, the cost of the fuel itself, etc.). A legitimate biodiesel producer is probably better positioned to deal with those costs, so it makes sense for him to keep the fuel and sell the RINs to companies that need them.

And that's precisely the problem. As soon as you start selling something totally abstract in lieu of something that was presumably produced all control mechanisms fail.

Which is why I'm not a fan of these constructs. Even a legitimate biofuel producer will see better margins on the RINs than on the fuel...

I think you just don't understand how a cap and trade system works. You should try doing a google search to read up on it. It's confusing at first, but there's nothing inherently uncontrollable about it. The only reason these scams are allowed to happen is the EPA doesn't have enough manpower to constantly watch over every facility to make sure fuel is actually being produced.

I think I understand it just fine, thank you.

> The only reason these scams are allowed to happen is the EPA doesn't have enough manpower to constantly watch over every facility to make sure fuel is actually being produced.

So, if you don't have that manpower don't set up a scheme like that.

Trust but verify, remember?

I mean, in the end it's impossible to completely prevent any scams from occurring. Even if we used a tax based system people could still lie, and we will wouldn't be able to see if they're telling the truth. It's not feasible to constantly check up on everyone.

They did verify that the RINs were being produced properly, which is what led to the guy being caught.

So I'm not sure what your argument is here. If you understand cap and trade systems, then you know that they aren't inherently gameable (which you just admitted). So are you saying that you think the EPA needs more funding?

> So are you saying that you think the EPA needs more funding?

They should have at least enough funding that they can catch scammers like this before they cause 10's of millions of $ of damage.

How does producing a bunch of biofuel achieve anything? Why is that something we want to incentivize? If this was about credits for sequestering x tonnes of carbon from the atmosphere then I can see how that should be worth a credit, but I don't see how it makes sense to single out biofuel any more than anything else those crops could have been used for.

Again, I recommend reading up on what cap and trade systems are. The goal isn't to produce biofuel, it's to reduce the amount of oil being used. Using biofuel instead of oil results in the production of less pollution.

But nothing actually ensures that the biofuel is used, or that less oil is used.

This is like saying banks should ship gold bars to each other, or maybe we should give up on money and use barter. (Money is an abstraction, after all.)

Abstraction is just how finance works. Yes, there is a risk of fraud, particularly in newer abstractions, but that's why we need auditing and enforcement.

And without sufficient auditing and enforcement you'll get scams and your goals will not be achieved. You're essentially betting the farm on the honesty of corporations controlled by people who now have a direct incentive to cheat. That's putting an awful lot of faith in humanity right where it has the biggest chance of failing (at the CEO level).

Note how in the article the people working there were saying they were 'expecting an audit any day now', but as long as their paycheck depended on not being audited they were all fine with it.

It's rather strange how the CEO is the only person indicted.

> And without sufficient auditing and enforcement you'll get scams and your goals will not be achieved.

Auditing and enforcement are critical. Shipping around physical gallons does not get rid of that need. Physical gallons could just as easily be water if nobody checks. I don't see why you blame the abstraction.

The consumer can't put the water in her tank and drive her car away. Since she has skin in the game, everyone upstream from her does too. It is reasonable to blame an "abstraction" that removes consumer interest entirely, and doesn't substitute some other control of equivalent strength. The minute I heard of "cap'n-trade", which was decades ago, I expected exactly this sort of scam. Those who designed this scheme, unlike the useful fools who provide political cover for it, did so with exactly the same thought.

The consumer gets 100% gasoline in either case. Forcing the oil companies to buy biodiesel does not force them to give it to consumers. The RID abstraction is a completely separate issue from whether anyone actually wants biodiesel.

Firms will be happy to buy a product wholesale that they cannot in turn distribute to consumers? What are they, farm-aid charities? Let's try to remain focused on the plausible.

Who said anything about them being happy? But that has absolutely nothing to do with whether they are forced to buy gallons they don't want or RIDs they don't want.

Now you're talking about maintaining two sets of books, and somehow regularly disposing of vast amounts of some unknown substance that isn't fit for use in automobiles. That sort of scheme won't even get started before it falls apart, because it relies on the silent cooperation of dozens of people throughout the organization. TFA describes schemes that lasted for years, because they depended on the actions of only one or two people. You assume that liquid matter is as easy to store and transport as ephemeral ID numbers, but it really isn't.

You make it sound like anyone at the oil company cares what they're buying. They want to tick a box. As long as they buy something that has the legal weight of biodiesel, and isn't expensive to get rid of, they're happy. One set of books, no distributed conspiracy.

Or they could never even bother to ship the gallons. That's not a 'scheme' of any sort at the oil company, it's just the business focusing on the part where it makes a profit and dealing with the regulation of buying biodiesel in the most minimal way possible.

Okay, but the system isn't going to be abandoned based on one case of fraud. It's gotta be a lot more widespread than that.

It's similar to how we don't see stores abandoning credit cards despite the impressive amount of fraud we see reported on Krebs. Instead the holes get fixed (eventually, with lots of foot-dragging).

The article reports an interesting story but it doesn't seem big enough to have that kind of impact.

I'm not defending the system. It is quite evidently flawed. I'm objecting to the implication that the oil companies are complicit rather than victims of fraud.

>Even a legitimate biofuel producer will see better margins on the RINs than on the fuel...

It certainly seems to create an incentive to cut costs at the expense of quality. I don't understand why Green Diesel didn't just continue to produce poor quality fuel and thereby sell legitimate RINs.

Because they'd end up with a bunch of unusable fuel that they would have to get rid of somehow. They chose the environmentally cleaner route ;)

RIDs and giant tanks of fuel are roughly equal in fungibility. You can even make RIDs into a liquid if you inscribe them on ping pong balls.

Let's imagine a slightly different scenario. Oil companies are forced to directly buy biodiesel, and biodiesel is so bad that they don't even bother adding it to their fuel. Someone could sell them empty tanks and then they wouldn't have to figure out how to dispose of unwanted biodiesel. Think of it as an optimization.

So in that scenario, there are no credits, there is no broken 1-1 link between numbers and gallons. There's just fake-production fraud. The problem there is fake-production fraud, and the problem in real life is fake-production fraud. Not the RIDs.

The numbers were valuable only so long as the fuel existed. As soon as it didn't, they're no longer valuable. Each references fuel. If the fuel it references doesn't exist, then the RIN is fraudulent.

It's not an optimization. It's just plain fraud.

And having people buy actual fuel doesn't solve anything. The fuel could be standard diesel bought at the pump that people are claiming is biodiesel.

That's Jacquesm's point. Fraud is optimizing for metrics without regard for what the metrics correlate to.

But that's true for anything. Counterfeiting is optimizing for obtaining paper instead of the actual units of currency.

The verification process has to be completed and has equivalent cost either way.