But if we are going to speculate--and let's face it, we are--let's at least have a gander at the relevant regulations. IANAL, etc, but from my reading Title 40 Part 80 Subpart M [1] it seems really unlikely that assigning the same volume of fuel different RINs is legal. There's a bunch there about assigning specific numbers to specific volumes of fuel, but there's also the super specific:
> (5) Importers shall not generate RINs for renewable fuel that has already been assigned RINs by a registered foreign producer.[2]
Sounds pretty clear.
[1] http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=27e92597...
[2] http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=27e92597...
If nobody is arrested or punished for it, then that's more like weak enforcement than clever use of the system.
http://en.wikipedia.org/wiki/Missing_trader_fraud#Carousel_f...
I assume the companies ran this by legal before going forward with the plan. Loopholes aren't illegal, they're just exploits.
From post below (soon hopefully to be 'above'):
"> (5) Importers shall not generate RINs for renewable fuel that has already been assigned RINs by a registered foreign producer.[2]"
Similar to how generals have the intelligence section of their staff put on only the enemy hat and poke holes in their plans.
You could provide similar incentives for reports on efficiency improvements (and to prevent exploitation of a system like this, you could have the bonus provided only if the improvement/fix is actually implemented, or based on how significant it is, or something.) Prize and crowd-sourcing systems have worked pretty well when it comes to a lot of things, so why not apply them to improving government bureaucracy?
As it stands, our system does the opposite - it rewards people for finding and abusing exploits in the system instead of fixing them (see - every corporate scandal and stock market crash ever.)
The best way to have motivated employees for creative tasks is to give them a high base salary, good working conditions and hire suiting ones in the first place. For repetitive jobs the incentives might work, but these are also the jobs where you should think about automation.
Rather than simply making cash-handouts, however, the Government & the Industry conspire to hide these handouts by creating new by-products for sale to consumers.
The Industry grows and rejoices, extending its products into as far ranging lines as sweeteners, fuels, and plastics.
To drive adoption they interrupt the free market through price manipulation and straight forward mandate from their "Environmental" agency.
Despite overwhelming evidence that consumers are being harmed by these by-products - record obesity, less efficient engines, and environmental damage - the subsidies only grow.
I'd like to see how the protagonist would drive change as presently my best solution is to rage via comment board into the echo chamber.
"sweeteners, fuels, and plastics" -- high fructose corn syrup, corn ethanol, corn ethanol-derived polyethylene
"price manipulation and straight forward mandate from their "Environmental" agency." -- corn ethanol subsidies, corn ethanol mandates
etc.
Am i missing the joke?
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.
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.
http://www.freakonomics.com/2012/10/11/the-cobra-effect-a-ne...
The companies maintain that this practice was legal. Another company, Northern Biodiesel, appears to have been put out of business by the practice.
The EPA has investigated several other cases of RIN fraud, including one against Jeffrey David Gunselman, the CEO of Absolute Fuels who was arrested in July, accused of selling more than $50 million in fake RIN credits.
So yeah, keep telling yourself that this is another case of the dum dum gubmint who needs to stay out of our way and how no one ever goes bankrupt after defrauding the gubmint because I mean, it all sounded great when Rush said it right?
And finally, do RIN credits provide better incentives than no credits? That is the real question that should be asked with regard to the government being involved. The government's track-record isn't great.
The assumption that this is a legal loophole is mistaken.
"It reads to me like the government is either creating perverse incentives, failing to implement correctly or failing to monitor"
Because someone committed fraud and they're now being investigated for fraud by the government?
"If it is the first, we'd be better off without the interference"
If only we were omniscient and knew which incentives were perverse.
"If it is the second, what is wrong with the government that it can't implement it's policies correctly (perhaps too complex)?"
If only the government could always put it's policies into effect perfectly like the free market. Wait, what?
"If it is the last, then why is the government not policing the policies better?"
Because justice isn't instant? Because 30+ years of one party pushing deregulation takes it's toll? It sounds like your solution to the latter is more deregulation.
"And finally, do RIN credits provide better incentives than no credits? That is the real question that should be asked with regard to the government being involved."
If only there were some way for the public to comment on future government rules.
"The government's track-record isn't great."
The track record for successful modern societies without pesky governments is stunningly less great.
Inside job? Sounds like the type of "glitch" that was in Office Space.
But probably not (Hanlon)
On the contrary, sounds a lot like a standard "carousel fraud"
> and I doubt they would have done it otherwise.
... Which happens despite being illegal.
> Good example of why most regulation is ridiculous
Laws aren't perfect, lets try no laws!
Yes the law of unintended consequences often occurs with regulations however blatantly taking advantage of someone or something is wrong, legal or illegal. This is where we need a jury of peers to determine whether we want to encourage or discourage the behavior that this company took part in. I'd find this company guilty in a heart beat.
It's like jury nullification in reverse.
All it takes for evil to triumph is good men to do nothing.
See Kowloon Walled City http://en.wikipedia.org/wiki/Kowloon_Walled_City
Also: see Somalia 10 years ago
I worked at Enron on their power trading floor, and saw them do pretty much the same thing with Ricochet and FatBoy which made the nightly news, congressional hearings etc. John Forney the guy who did it got a $4,000 fine and two years probation in a plea deal which he took because it was cheaper than paying his lawyers to go to court.
Anyways this is JV ball vs. what the paper industry has done with Black Liquor that has run into the BILLIONS.