
The Fake Factory That Pumped Out Real Money - petethomas
http://www.bloomberg.com/features/2016-fake-biofuel-factory/
======
jacquesm
It's a typical case of creating a wrong metric and then steering by it.

I really don't like these 'credits' systems, the same goes for CO2 credits and
all the other systems out there like this. They're a magnet for fraud and
rarely if ever serve to actually remedy the issue they're aimed at.

It's just a way to move money around, not to solve problems.

The interesting bit here is that is actually quite hard to figure out why what
they did was illegal, at first glance you'd say that the agency that created
the opportunity is _just_ as culpable as those that took advantage of it, it
doesn't take genius to figure out that this would lead to trouble.

[http://econlife.com/2012/04/government-guidelines-and-
uninte...](http://econlife.com/2012/04/government-guidelines-and-unintended-
consequences/)

~~~
Pxtl
Yes, that's why most economists I've read seem to agree that carbon tax is
better than co2 credit cap-and-trade systems - simpler and harder to game,
flawed only because it includes the word "tax" which is unpalatable to the
public.

~~~
Alex3917
A tax is actually vastly more complicated and easier to game.

Remember, the goal is to cap emissions, not to raise money. When you start
with a cap and work backwards towards the clearing price, you are guaranteed
to be meet that cap. But when you start by setting a price, there is zero
guarantee that you're going to meet your emissions target.

Also, the point of cap and trade is that it lets societies meet their
emissions target in the least expensive way possible. Whereas a tax imposes
the same fees on everyone, regardless of how much it would cost them to lower
their emissions. This makes zero sense.

~~~
fsargent
Cap and Trade and a Carbon Tax are equivalent in outcome. Cap and trade would
impose fees on everyone regardless of how much it costs them to lower
emissions also. The problem with Cap and Trade is that it targets the large
scale emitters rather than the item desired to be limited.

Imagine that you had five major producers putting out 30% of airborne carbon,
and 50,000 minor producers putting out 70%. The cost of administering a cap
and trade system to the minor producers would be incredibly expensive - the
legislation would instead focus on gouging the five major producers. Also
imagine that the 50,000 minor producers could very easily cut their production
of carbon in half.

The price should be set to the amount of damage the externality causes.
Current estimates of the social cost of carbon is ~$220 per ton.
[http://www.nature.com/nclimate/journal/vaop/ncurrent/full/nc...](http://www.nature.com/nclimate/journal/vaop/ncurrent/full/nclimate2481.html)

Cap and trade punishes large players - taxes are fair _because_ they impose
the same fees on everyone.

Cap and Trade being the least expensive way possible is also a terrible loss
for good tax reform. If we implement a responsible carbon tax, the offset
income can be used to reduce associated corporation taxes, sales taxes, or
even income taxes.

An optimal tax system taxes things and behaviors we don't want, and subsidises
things and behaviors we do want. Let's get rid of an income tax, and replace
it with a environmental tax. More money in your pocket, and cleaner air.

~~~
rayiner
As California's attempts to tax mileage of hybrid and electric vehicles
proves, if you create an additional source of revenue for the government, tax
levels will bear no relation to the harm they're designed to compensate for.
It becomes just another way for the government to raise taxes without
admitting to doing so.

~~~
wbl
The gas tax was set to charge for road wear, not carbon externialities

~~~
jacquesm
And VAT in Europe was only created to rebuild after the war.

Tax repeals are very rare, once they're worked into the budget they are there
to stay and usually will expand to pay for other things besides the reason
they were originally created.

------
edkennedy
Other hilarious and frightening "business ideas" with US government issued
carbon credits:

Dumping giant piles of iron sulfate into the ocean in Northern Canada:
[http://www.timescolonist.com/news/local/haida-readying-
for-s...](http://www.timescolonist.com/news/local/haida-readying-for-second-
round-of-iron-dumping-in-ocean-1.115880)

Driving a train full of biodiesel across the border and back again numerous
times while never unloading it: [http://www.cbc.ca/news/canada/biofuel-
credits-behind-mystery...](http://www.cbc.ca/news/canada/biofuel-credits-
behind-mystery-cross-border-train-shipments-1.1252080)

~~~
shard972
I tried to find a follow up to the iron sulfate story but couldn't find one,
would be interesting to hear what happened.

~~~
aaron695
Evidence seems like it worked. Much as people didn't want it to.

[http://www.cbc.ca/news/canada/british-columbia/haida-
gwaii-o...](http://www.cbc.ca/news/canada/british-columbia/haida-gwaii-ocean-
fertalizing-chile-1.3550783)

~~~
edkennedy
The theory behind it is sound, the issue is with sustainability. Changing the
ecosystem that much when you have no idea how sustainable the growth is or how
it will affect the ecosystem as a whole is risky.

------
mrob
Methanol is not a catalyst in biodiesel production, it's a reactant. See:

[https://en.wikipedia.org/wiki/Biodiesel_production#Transeste...](https://en.wikipedia.org/wiki/Biodiesel_production#Transesterification)

This example shows ethanol but it works the same way with methanol.

------
josinalvo
Nevermind the scam. How is the system supposed to work?

A company produces biodiesel and can sell, separately, the biodisel and the
RIN. A fuel company can buy the RIN instead of biodiesel, and, in theory, that
would mean that another fuel company bought the biodiesel, and is using more
biodiesel and less petroleum. Correct?

What if, instead, the biodiesel is used in a previously non existent or
previously carbon neutral industry? That does not seem to reduce pollution at
all. How does the system prevent it? Does the system prevent it?

~~~
dmurray
The biodiesel was meant to be equivalent to regular diesel, so it could be
sold at the same price, but more expensive to produce. So a "previously non
existent or previously carbon neutral industry" wouldn't have any reason to
switch to biodiesel, unless it was already good for them to switch to regular
diesel.

------
fit2rule
> He kept a miniature, stainless-steel working model of it in his office. “I
> could put vegetable oil through it and get a cup of the most beautiful
> biodiesel you ever saw,” Harvey Greenwood, Green Diesel’s former director
> for engineering, says of the model.

The most interesting part of this whole story, imho. Doesn't anyone else want
their own desktop vegetable-oil to perfect diesel machine?

~~~
hexane360
I really want to make something like this. I wonder if that would need a
little agitator, or some temperature control, or valves, or what?

And then once you have the piping, you can get some automatic control, and
some management software. . .

------
hackaflocka
Interesting that there's no easily found mug shot of him considering he's in
Fed Prison.

In India, about 25 years ago, the govt instituted export credits. Basically,
in order to import anything, you needed to have export credits. So, export
credits became a fungible currency. And people started exporting all kinds of
crap under the guise of something legit, just to obtain export credits. People
were exporting bricks, calling them shoes, and then selling the export
credits. Of course, government officials were involved end-to-end in the scam
(via relatives and friends, as is usually done there). Sad to see similar
things are happening in the US now.

------
Bromskloss
I'd much appreciate a description of the core thing here, without the
narrative.

~~~
seibelj
EPA allows biodiesel refiners to make up their own serial numbers. They sell
the numbers in excel spreadsheets to oil companies. No one ever verifies that
the numbers match real barrels of biodiesel. Criminals moved in

~~~
ryandrake
THANK YOU. >3000 words to 36. These long form articles are not for everyone, a
TL;DR summary is always welcome.

~~~
Dylan16807
That's not really a summary of the article, which is about a particular
company.

And the article itself _already has_ a nice condensed explanation of the
fraud: [http://www.bloomberg.com/features/2016-fake-biofuel-
factory/...](http://www.bloomberg.com/features/2016-fake-biofuel-
factory/img/feat_biofraud30_1200x720.png)

