Two notorious crooks are helping us wrap up another sordid episode in the saga of the United States biofuel mandates, while further highlighting how bungled and long past its expiration date the program is.
Congress concocted the mandates over fears that U.S. gasoline demand would rise forever and keep the United States dependent on foreign oil, as America’s supposedly limited reserves were depleted. The mandates currently require that we blend 15 billion gallons of ethanol with gasoline every year, and produce over a billion gallons of biodiesel. They hammer us consumers every time we fill our tanks.
Turning corn into ethanol requires vast amounts of land, fertilizers, pesticides, tractor and truck fuel, and natural gas for distillation. It enriches some farmers but raises animal feed prices and thus the cost of beef, pork, chicken, eggs, fish, and international food aid. Biodiesel from restaurant waste oil makes some sense, but making it from palm oil or soybeans has similar negative ecological impacts.
The ethanol mandate encourages farmers to plow wildlife habitats and fallow fields to grow corn, releasing millions of tons of carbon dioxide. Ethanol gets one-third less mileage per gallon than gasoline, so motorists get fewer miles per tank and per dollar. It produces ozone, attracts water and corrodes car and small engine components, forcing us to spend billions on repairs.
The tale of Philip Joseph Rivkin (aka Felipe Poitan Arriaga) reveals an equally disgusting aspect of the mandate, resulting from the absurdly complex Renewable Identification Number (RIN) system devised by EPA bureaucrats. As Ron Arnold explains in our book, Cracking Big Green, EPA requires that every gallon of biofuel must also have its own unique 38-digit RIN. That’s billions of RINs per year!
“Dry” RIN paper credits are supposed to be associated with actual “wet” gallons of biofuel: corn-based ethanol, biomass-based diesel, or nonexistent “advanced cellulosic” fuels. When fuels are not available, refiners can buy RINs from another party that was able to blend the fuel. This “tradable credits” market creates irresistible opportunities for “entrepreneurs” like Rivkin, whose Green Diesel company sold phony biodiesel RINs to oil companies and brokers.
Between 2011 and 2012, Rivkin sold $29 million worth of phony RINs, without producing a single gallon of anything. Secret Service agents arrested him last year in Houston, after he had been expelled from Guatemala, where he had falsely claimed to be a citizen. He plead guilty and now faces 10 years in prison, millions of dollars in fines, and the forfeiture of his Lamborghini, Maserati, Canadair LTD plane, $29 million in cash, and an art collection valued in the millions.
His escapade copied what Rodney Hailey pulled off in Perry Hall, Maryland. He rented a garage, filled it with pipes, tanks, and pumps (none connected to one another), registered his Clean Green Fuel company with the EPA, put up a fancy website, and claimed he would produce 20 million gallons of biodiesel annually from recycled cooking oil. Through a network of traders, Hailey sold more than 32 million bogus RINs for $9 million, while still collecting unemployment.
Eventually, his fancy house, 20 luxury cars, and lavish lifestyle attracted law enforcement. In 2013, he was sentenced to 12-1/2 years in prison and ordered to pay more than $42 million in restitution: his sleazy profits plus what his victims had to pay for valid replacement RINs.
The good news is that Rivkin and Hailey will have to pay for their fraudulent actions. (How many other biofuel crooks have not been caught we have no way of knowing.) The bad news is that the RIN system is still in place, under a misguided federal law that benefits almost no one outside the biofuel industry. The worse news is that the cost of their fraud pales by comparison to the lies and fraud perpetrated by the EPA and its climate crisis, clean energy, and ultra-pure air allies.
Since the biofuel mandate was imposed in 2005 and expanded in 2007 under the Renewable Fuel Standard, it has sent billions of taxpayer and motorist dollars to corn farmers and ethanol producers. It has cost consumers countless billions in reduced mileage, higher food prices, and repairs to their cars, trucks, boats, snowmobiles, chain saws, and other small engine equipment. The corn converted into biofuel each year is enough to feed 412 million malnourished people in African and other countries.
Antique autos and other older cars are not compatible with fuels containing ethanol, especially E15 (15% EtOH). Gaskets and other rubber parts can fail, causing fuel leaks and even engine failure or fires. On boats, fiberglass fuel tanks deteriorate and outboard motors can overheat and stop functioning. On airplanes – well you don’t want to ponder what happens when your engine stalls at 10,000 feet.
Many consumers – even corn farmers with older tractors – prefer straight gasoline, which is increasingly hard to find. Nevertheless, in 2014, straight gasoline accounted for almost 7% of total U.S. gasoline sales, double the 3.4% of pure gasoline sold in 2012.
Meanwhile, worries about “peak oil” and “overdependence” on foreign oil have nearly evaporated. Thanks to fracking and other advanced drilling technologies, the United States is now the world’s largest producer of oil and natural gas. As consumers drive less and invest in more fuel-efficient newer vehicles, gasoline demand is moderating, after peaking in 2007. And the other justification for ethanol, “dangerous manmade climate change,” is steadily being exposed as just another über-expensive ecological scare.
If consumers want “alternative fuels,” natural gas presents more viable, environmental, free-market, cost-competitive choices. Compressed into high-pressure tanks, it can (and already does) power cars, trucks, taxis, and buses. Converted into methanol, our abundant natural gas would enable Detroit to build light, powerful, low-pollution, high-octane engines that get better mileage than ethanol-tainted fuels. Existing cars can be converted into “flex-fuel” vehicles for less than $100 – and producing the natural gas and converting it into methanol involves minimal land impacts, no food price hikes and no harm to engines.
Biofuels are guilty as charged. They do to motorists, taxpayers. and consumers what wars and riots do to cities. Justifying legislative mandates by saying they create jobs for a few corn growers, biofuel producers, and engine repairmen is akin to claiming mobs and warfare foster employment for insurers, firemen, carpenters, and window repair companies. The perverse logic also ignores jobs destroyed and businesses destroyed or relocated, and the far better ways our billions of dollars could have been spent.
Politicians, bureaucrats, and eco-activists clearly care little about the coal mine workers and communities they have destroyed. Why should biofuel producers be more sacrosanct and protected – based on false claims that these fuels ensure emission reductions, “home-grown” energy supplies, and climate stability?
The Renewable Fuel Standard and biofuel mandates do more harm than good. They have outlived their usefulness and should not merely be “fixed,” as some suggest, but scrapped entirely.
Americans should no longer be forced to prop up crony-corporatist biofuel companies and pay for expensive repairs under outdated congressional and EPA edicts.