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Regulators Duck Suit Over Phony Fuel Credits

HOUSTON (CN) - The Environmental Protection Agency is not liable for a fuel broker's purchase and sale of phony renewable fuel identification numbers, a federal judge ruled.

A renewable identification number, or RIN, is a 38-digit serial number that the EPA assigns to each batch of renewable fuel produced. When the product is sold, the RIN goes with it.

Once the fuel and its RIN reach the end of the supply chain, and the fuel is blended into gasoline or diesel by a refiner or importer, the RIN becomes a tradable credit.

Since some fuel refiners and importers blend more renewable fuel than their EPA-directed share, they can trade or sell the RINS to others that find it more economical to purchase RINs instead of blending ethanol or biodiesel.

Vinmar Overseas alleged that OceanConnect sold it 4.1 million phony and worthless RINS, but OceanConnect filed a third-party complaint against the United States, and several companies that allegedly put the bad numbers into the market first.

Citing "negligent administration" of the Clean Air Act, OceanConnect said that the EPA caused regulated companies to transfer invalid RINs into the RINs marketplace, and violated emissions standards.

The fuel broker asked the court to impose millions of dollars in civil penalties against the EPA.

After the court dismissed the claims against the United States for lack of subject-matter jurisdiction, OceanConnect tried to file an amended third-party complaint to bring claims against the United States under the Federal Tort Claims Act.

The amended complaint alleges that United States violated its duty to vet and register as renewable fuel producers only those companies with manufacturing facilities to actually produce renewable fuel.

By breaching this duty, the EPA caused millions of phony RINs to "permeate and infect the RINs marketplace," OceanConnect said.

The fuel broker added that it would use any damages collected from the United States to pay any judgment it might owe Vinmar.

But this argument failed to sway U.S. District Judge Lee Rosenthal, who refused to grant OceanConnect leave to file an amended third-party complaint Thursday.

"OceanConnect's claim is that the United States is primarily liable for all of OceanConnect's damages arising from the invalid RINs it purchased," Rosenthal wrote. "The fact that OceanConnect later sold some of those RINs to Vinmar does not create any liability that the United States may have to OceanConnect."

OceanConnect furthermore cannot sever its first amended third-party complaint against the United States for separate litigation, the judge added.

"Given that OceanConnect's attempt to amend its third-party complaint was unsuccessful, allowing further leave to attempt to assert a third-party claim against the United States in this case would be futile," he wrote.

On its website, the EPA said it is "developing a proposal for a quality assurance program that could be used to verify the valid generation of RINs.

The agency created RINS as part of the Renewable Fuel Standard Program, under the Energy Policy Act of 2005. It says the plan originally required 7.5 billion gallons of renewable fuel to be blended into gasoline by 2012. After bringing diesel into the program in 2007, however, the new requirements jumped from 9 billion gallons in 2008 to 36 billion gallons by 2022.

Regulators hope that the use of renewable fuels will reduce greenhouse gas emissions, reduce U.S. imports of petroleum and encourage energy development.

In the United States, corn is the main crop used to make the ethanol.

After the drought caused corn prices to soar, a bipartisan group of governors recently asked the EPA for a one-year waiver of the Renewable Fuel Standard

But the EPA replied that "waiving the RFS would have little, if any, impact on ethanol demand over the time period analyzed."

Opponents to the program include livestock producers and food security advocates who argue the ethanol mandate is raising prices for corn, driving up the cost of feeding livestock, since corn is used extensively in processed foods.

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