ExxonMobil, Morgan Stanley and Shell Oil are among the companies potentially on the hook. | AP Photos Energy license fines fuel industry ire

Shell Oil, ExxonMobil and Morgan Stanley are among the major oil and financial companies potentially on the hook for millions of dollars in civil fines tied to fraudulent renewable fuel credits — and that could be the tip of the iceberg.

The Environmental Protection Agency last week sent out 24 notices of violations to companies linked to the purchase and use of what turned out to be fake “renewable identification numbers” sold by Clean Green Fuel. A RIN is a 38-digit number required by the EPA to document the production of a certain amount of renewable-blended fuel.


The owner of Clean Green Fuel, Rodney Hailey, was charged Oct. 3 with wire fraud, money laundering and a violation of the Clean Air Act for allegedly selling 32 million RINs valued at $9 million and representing 22 million gallons of biodiesel fuel.

But industry officials say the EPA is using the companies as a scapegoat while ineffectively policing the RIN trading market.

Industry representatives are expected to head to Capitol Hill this week to talk with Republicans on the House Energy and Commerce and Senate Environment and Public Works committees about the matter, said one industry official who requested anonymity and represents a company that received one of the notices.

“This is like Solyndra,” the official said. “This is a government-created freaking mess, and they never policed it.”

Officials from the National Petrochemical & Refiners Association and American Petroleum Institute plan to meet with the EPA on Friday.

“We will not be at liberty to discuss the recently issued [notices of violations] themselves, but we believe we can have a productive discussion of the general issues posed by invalid RINs,” wrote Margo Oge, director of the EPA’s Office of Transportation and Air Quality, in a letter to the trade associations last week. Members of the EPA’s Office of Enforcement and Compliance Assurance, which issued the violations to the companies, will also be attending the meeting.

As of Oct. 4, Clean Green Fuel was included on the EPA’s registry of acceptable biodiesel fuel distributors, which the industry consults before they purchase RINs.

NPRA President Charles Drevna said it is “unjustifiable” for the EPA to issue the notices of violations to companies that were simply purchasing RINs from a seller that was registered by the EPA.

“It’s just frustrating that our folks went out in good faith because they had the full faith and backing of the federal government,” Drevna said. “But apparently, somebody slipped up somewhere, and it certainly wasn’t the refiners and other obligated parties.”

Like a cap-and-trade market for greenhouse gas emissions, the EPA’s Renewable Fuels Standard essentially created a market where companies are able to sell their RINs to those that need help to meet the production mandate. A company that produces the fuel may elect to keep the actual physical fuel while allowing a third party to sell the rights to their RIN to another company.

The EPA says Shell Oil and company affiliates used more than 4 million fake RINs from Clean Green Fuel — including more than 2.4 million used by Motiva Enterprises, 1.1 million used by Shell Oil Products and 840,000 used by Shell Trading Co.

Among the other companies the EPA says allegedly purchased and used fake RINs include 2.2 million RINs by Marathon Petroleum Co.; 861,000 by the independent refinery Tesoro Corp.; 613,000 by Sunoco; 138,000 by Exxon; and 42,750 by Morgan Stanley.

The Clean Air Act authorizes the EPA to levy civil fines upward of $37,500 per day for each violation, the agency noted in its letters.

The fear exists that other companies have unknowingly purchased fake RINs.

The EPA’s criminal division is reportedly investigating Texas-based biofuels company Absolute Fuels for selling $40 million worth of RINs but producing no biodiesel. The company, like Clean Green Fuel, was also registered with the EPA.

“I’m afraid this is going to be … the tip of the iceberg,” Drevna said. “Because how are we to know? Do we really believe there were just one or two bad actors out there? And I think the question is who at EPA certified these folks?”

He added: “And then to turn around and have the EPA slap NOVs on the individual parties is ridiculous, and what I don’t want to hear is one part of EPA to say, ‘Well, that’s not our job.’ To us, EPA is EPA.”

In an email to POLITICO, the EPA said it would “consider several factors during the course of its investigation” regarding any potential civil fines being levied. “These factors may include the economic benefit or savings (if any) resulting from the violation, the size of a business, compliance history with the CAA and any actions taken to remedy the violation and prevent future violations,” according to the agency.

Shell released a statement saying it is “working with the agency to resolve this matter.”

“When these RINs were purchased, they were believed to be valid,” the company added.

Officials for Exxon, Marathon Oil and Morgan Stanley declined to comment, and Sunoco did not return requests for comment.

The EPA contends that the agency does not actually oversee the RIN market.

“To help parties identify and address potential RIN problems, EPA posts aggregated renewable fuel production information on our website every month, and we plan to pose facility-specific production volume information in the future,” according to the agency’s email. “This information can help market participants identify unusual or anomalous production volumes.”

The reporting system “also provides several tools that can help RIN buyers avoid buying, selling and using RINs from questionable sources,” the EPA said.

Legal action could be the next step.

“We kind of think our options are to sue the person” who sold the RINs “or do you sue the agency for failing to police the RIN market that they have created?” an industry official said. “And that’s probably more ripe for litigation.”

It is unclear though whether the EPA has sufficiently shielded itself by including a “buyer beware” caveat pertaining to the purchase of RINs in its second iteration of the Renewable Fuels Standard published in December 2010. Congress initially established the RFS program in 2005.

Drevna wasn’t sure a lawsuit would be successful. The EPA has “washed its hands” of responsibility through its renewable fuels production rule, he said. “This whole issue sort of belies the intent of the law, but it affirms how poorly drafted it was and what bad public policy it is,” Drevna said.

Joe Jobe, CEO of the National Biodiesel Board, said that while the charges are serious, it shouldn’t be used to undermine the overall renewable fuel program.

“As unfortunate and unsavory as these fraud cases are, we’re actually encouraged to see this action from the EPA because it’s going to send very strong signals to bad actors, criminals,” Jobe said. “Anytime you have a new system, a new program, there’s going to be wrinkles that need to be ironed out.”