RIN Auditor Hit

OMAHA (DTN) -- Genscape Inc., which serves as a third-party auditor to ensure the integrity of Renewable Identification Numbers credit system from fraud, appears to be getting a big black eye for the job it's done -- and possibly a financial loss of about $68 million.

Genscape is the corporate partner of the National Biodiesel Board and its role was to verify RIN credits. The credits are an important element for fuel blenders and exporters to comply with the Renewable Fuel Standard, which supports commodity and biofuels markets.

However, the U.S. Environmental Protection Agency announced Wednesday its intention to revoke Genscape Inc.'s ability to audit those credits because it didn't prevent approximately 68 million fraudulent RIN from hitting the market in 2013 and 2014. The company has 60 days to submit comment to EPA.

RIN is a 38-digit code attached to every gallon of ethanol, biodiesel and other biofuels produced. Gasoline and diesel refiners and importers are required to either buy actual biofuels gallons or the credits attached.

The agency said Genscape will need to replace the invalid RIN by obtaining 68 million valid RIN and retiring them within 60 days.

Based on current RIN prices near $1 each, DTN Energy Editor Brian Milne said Genscape's loss would be in the neighborhood of $68 million.

"EPA has been aggressively adding to its enforcement capabilities, so its seems like they found a problem with Genscape's scrutiny," Milne said. "It's certainly a black eye for Genscape, a company I think is really good at what they do."

The EPA action came about as a result of two cases of RIN fraud from 2013 to 2014 involving Gen-X Energy Group Inc. and Southern Resources and Commodities LLC. The cases resulted in several successful prosecutions. Genscape employees have not been charged in the cases.

If EPA revokes Genscape's ability to verify RIN, other biodiesel producers that use the company's services would need to switch to other auditors, according to EPA's announcement.

When contacted by DTN for comment, Susan Olson, managing director of ag and biofuels at Genscape, said "no comment."

Kaleb Little, senior communications manager for NBB, said in a statement to DTN, "Biodiesel is the single biggest success story of the RFS. The RFS is working as intended, to build a reliable renewable fuel supply and market. It is creating U.S. jobs, reducing our dependence on petroleum and cutting pollution."

The EPA created a voluntary program that allows third parties to audit RIN as part of EPA-approved Quality Assurance Plans, or QAPs, used to verify RIN validity. The agency said in its announcement about 12% of the total volume of RIN generated in the RFS program are audited by a third party under the plans.

In May 2012 the National Biodiesel Board partnered with Genscape to develop the industry's RIN Integrity program. As part of that effort Genscape launched the Genscape RIN Integrity Network dashboard, http://biodiesel.org/….

"The RIN Integrity Network dashboard allows obligated parties who subscribe to the Genscape service to do their due diligence with real-time information on participating biodiesel producers through a user-friendly, online information service," the NBB says on its website. "This 'dashboard' allows subscribing parties to cheaply and easily tell whether an individual biodiesel producer's RINs have been verified through the Genscape system."

Billionaire energy investor Carl Icahn has been a vocal critic of the RIN market. Icahn has been named as an advisor to President-elect Donald Trump.

Read the EPA notice here: http://bit.ly/….

Read more about the RIN system in DTN's three-part story series: http://bit.ly/…, http://bit.ly/…, http://bit.ly/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

(ES/SK)

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