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That's a bit like saying a ripped-off investor should have bought stock, not mutual funds. These companies needed the RINs, not the fuel. If they had bought th

That's a bit like saying a ripped-off investor should have bought stock, not mutual funds. These companies needed the RINs, not the fuel. If they had bought the fuel with the RINs they could have been assured the RINs were legitimate, sure. But that has all kinds of associated costs (quality control, finding buyers, the cost of the fuel itself, etc.). A legitimate biodiesel producer is probably better positioned to deal with those costs, so it makes sense for him to keep the fuel and sell the RINs to companies that need them.

jacquesm 10y ago
And that's precisely the problem. As soon as you start selling something totally abstract in lieu of something that was presumably produced all control mechanisms fail. Which is why I'm not a fan of these constructs. Even a legitimate biofuel producer will see better margins on the RINs than on the fuel...
- blaisio 10y ago
  I think you just don't understand how a cap and trade system works. You should try doing a google search to read up on it. It's confusing at first, but there's nothing inherently uncontrollable about it. The only reason these scams are allowed to happen is the EPA doesn't have enough manpower to constantly watch over every facility to make sure fuel is actually being produced.
  - jacquesm 10y ago
    I think I understand it just fine, thank you. > The only reason these scams are allowed to happen is the EPA doesn't have enough manpower to constantly watch over every facility to make sure fuel is actually being produced. So, if you don't have that manpower don't set up a scheme like that. Trust but verify, remember?
    - blaisio 10y ago
      I mean, in the end it's impossible to completely prevent any scams from occurring. Even if we used a tax based system people could still lie, and we will wouldn't be able to see if they're telling the truth. It's not feasible to constantly check up on everyone. They did verify that the RINs were being produced properly, which is what led to the guy being caught. So I'm not sure what your argument is here. If you understand cap and trade systems, then you know that they aren't inherently gameable (which you just admitted). So are you saying that you think the EPA needs more funding?
      - jacquesm 10y ago
        > So are you saying that you think the EPA needs more funding? They should have at least enough funding that they can catch scammers like this before they cause 10's of millions of $ of damage.
  - lmm 10y ago
    How does producing a bunch of biofuel achieve anything? Why is that something we want to incentivize? If this was about credits for sequestering x tonnes of carbon from the atmosphere then I can see how that should be worth a credit, but I don't see how it makes sense to single out biofuel any more than anything else those crops could have been used for.
    - blaisio 10y ago
      Again, I recommend reading up on what cap and trade systems are. The goal isn't to produce biofuel, it's to reduce the amount of oil being used. Using biofuel instead of oil results in the production of less pollution.
      - lmm 10y ago
        But nothing actually ensures that the biofuel is used, or that less oil is used.
- cgriswald 10y ago
  I'm not defending the system. It is quite evidently flawed. I'm objecting to the implication that the oil companies are complicit rather than victims of fraud. >Even a legitimate biofuel producer will see better margins on the RINs than on the fuel... It certainly seems to create an incentive to cut costs at the expense of quality. I don't understand why Green Diesel didn't just continue to produce poor quality fuel and thereby sell legitimate RINs.
  - jacquesm 10y ago
    Because they'd end up with a bunch of unusable fuel that they would have to get rid of somehow. They chose the environmentally cleaner route ;)
- skybrian 10y ago
  This is like saying banks should ship gold bars to each other, or maybe we should give up on money and use barter. (Money is an abstraction, after all.) Abstraction is just how finance works. Yes, there is a risk of fraud, particularly in newer abstractions, but that's why we need auditing and enforcement.
  - jacquesm 10y ago
    And without sufficient auditing and enforcement you'll get scams and your goals will not be achieved. You're essentially betting the farm on the honesty of corporations controlled by people who now have a direct incentive to cheat. That's putting an awful lot of faith in humanity right where it has the biggest chance of failing (at the CEO level). Note how in the article the people working there were saying they were 'expecting an audit any day now', but as long as their paycheck depended on not being audited they were all fine with it. It's rather strange how the CEO is the only person indicted.
    - skybrian 10y ago
      Okay, but the system isn't going to be abandoned based on one case of fraud. It's gotta be a lot more widespread than that. It's similar to how we don't see stores abandoning credit cards despite the impressive amount of fraud we see reported on Krebs. Instead the holes get fixed (eventually, with lots of foot-dragging). The article reports an interesting story but it doesn't seem big enough to have that kind of impact.
    - Dylan16807 10y ago
      > And without sufficient auditing and enforcement you'll get scams and your goals will not be achieved. Auditing and enforcement are critical. Shipping around physical gallons does not get rid of that need. Physical gallons could just as easily be water if nobody checks. I don't see why you blame the abstraction.
      - jessaustin 10y ago
        The consumer can't put the water in her tank and drive her car away. Since she has skin in the game, everyone upstream from her does too. It is reasonable to blame an "abstraction" that removes consumer interest entirely, and doesn't substitute some other control of equivalent strength. The minute I heard of "cap'n-trade", which was decades ago, I expected exactly this sort of scam. Those who designed this scheme, unlike the useful fools who provide political cover for it, did so with exactly the same thought.

jacquesm 10y ago

And that's precisely the problem. As soon as you start selling something totally abstract in lieu of something that was presumably produced all control mechanisms fail. Which is why I'm not a fan of these constructs. Even a legitimate biofuel producer will see better margins on the RINs than on the fuel...

blaisio 10y ago
I think you just don't understand how a cap and trade system works. You should try doing a google search to read up on it. It's confusing at first, but there's nothing inherently uncontrollable about it. The only reason these scams are allowed to happen is the EPA doesn't have enough manpower to constantly watch over every facility to make sure fuel is actually being produced.
- jacquesm 10y ago
  I think I understand it just fine, thank you. > The only reason these scams are allowed to happen is the EPA doesn't have enough manpower to constantly watch over every facility to make sure fuel is actually being produced. So, if you don't have that manpower don't set up a scheme like that. Trust but verify, remember?
  - blaisio 10y ago
    I mean, in the end it's impossible to completely prevent any scams from occurring. Even if we used a tax based system people could still lie, and we will wouldn't be able to see if they're telling the truth. It's not feasible to constantly check up on everyone. They did verify that the RINs were being produced properly, which is what led to the guy being caught. So I'm not sure what your argument is here. If you understand cap and trade systems, then you know that they aren't inherently gameable (which you just admitted). So are you saying that you think the EPA needs more funding?
    - jacquesm 10y ago
      > So are you saying that you think the EPA needs more funding? They should have at least enough funding that they can catch scammers like this before they cause 10's of millions of $ of damage.
- lmm 10y ago
  How does producing a bunch of biofuel achieve anything? Why is that something we want to incentivize? If this was about credits for sequestering x tonnes of carbon from the atmosphere then I can see how that should be worth a credit, but I don't see how it makes sense to single out biofuel any more than anything else those crops could have been used for.
  - blaisio 10y ago
    Again, I recommend reading up on what cap and trade systems are. The goal isn't to produce biofuel, it's to reduce the amount of oil being used. Using biofuel instead of oil results in the production of less pollution.
    - lmm 10y ago
      But nothing actually ensures that the biofuel is used, or that less oil is used.
cgriswald 10y ago
I'm not defending the system. It is quite evidently flawed. I'm objecting to the implication that the oil companies are complicit rather than victims of fraud. >Even a legitimate biofuel producer will see better margins on the RINs than on the fuel... It certainly seems to create an incentive to cut costs at the expense of quality. I don't understand why Green Diesel didn't just continue to produce poor quality fuel and thereby sell legitimate RINs.
- jacquesm 10y ago
  Because they'd end up with a bunch of unusable fuel that they would have to get rid of somehow. They chose the environmentally cleaner route ;)
skybrian 10y ago
This is like saying banks should ship gold bars to each other, or maybe we should give up on money and use barter. (Money is an abstraction, after all.) Abstraction is just how finance works. Yes, there is a risk of fraud, particularly in newer abstractions, but that's why we need auditing and enforcement.
- jacquesm 10y ago
  And without sufficient auditing and enforcement you'll get scams and your goals will not be achieved. You're essentially betting the farm on the honesty of corporations controlled by people who now have a direct incentive to cheat. That's putting an awful lot of faith in humanity right where it has the biggest chance of failing (at the CEO level). Note how in the article the people working there were saying they were 'expecting an audit any day now', but as long as their paycheck depended on not being audited they were all fine with it. It's rather strange how the CEO is the only person indicted.
  - skybrian 10y ago
    Okay, but the system isn't going to be abandoned based on one case of fraud. It's gotta be a lot more widespread than that. It's similar to how we don't see stores abandoning credit cards despite the impressive amount of fraud we see reported on Krebs. Instead the holes get fixed (eventually, with lots of foot-dragging). The article reports an interesting story but it doesn't seem big enough to have that kind of impact.
  - Dylan16807 10y ago
    > And without sufficient auditing and enforcement you'll get scams and your goals will not be achieved. Auditing and enforcement are critical. Shipping around physical gallons does not get rid of that need. Physical gallons could just as easily be water if nobody checks. I don't see why you blame the abstraction.
    - jessaustin 10y ago
      The consumer can't put the water in her tank and drive her car away. Since she has skin in the game, everyone upstream from her does too. It is reasonable to blame an "abstraction" that removes consumer interest entirely, and doesn't substitute some other control of equivalent strength. The minute I heard of "cap'n-trade", which was decades ago, I expected exactly this sort of scam. Those who designed this scheme, unlike the useful fools who provide political cover for it, did so with exactly the same thought.