Loren Steffy
Houston Chronicle

Itís a big, fat lie ó or perhaps I should say itís a big lie about fat.

Since 2007, federal regulators have attempted to foster and oversee a ďmarketĒ for biodiesel, the renewable fuel, mostly for heavy trucks, thatís made from animal fats, cooking oil and the like.

The program is part of the renewable fuels mandate enacted by the Bush administration and continued under President Barack Obama in hopes of encouraging enough production to create a viable market. Itís a worthy goal, but this isnít the way to do it.

The program calls for refiners to buy or produce enough biodiesel or other fuels to offset 9 percent of their fossil fuel production. Companies that canít meet that quota can buy credits from others that do.

But the market for buying and selling those credits is rife with allegations of fraud, which has undermined confidence of the refining industry and sparked lawsuits.

The Environmental Protection Agency, which oversees the market, has found more than 140 million fraudulent credits out of the 1.6 billion generated last year.

In other words, the government attempted to create a market out of thin air and use it as an incentive to develop a fuel source that lacks the economic viability to create demand on its own.

Having created this so-called market, the EPA has done little to police it, and when it has acted, the enforcement came after the fact. The EPA doesnít review the credits to ensure theyíre authentic, and it even goes so far as to disclaim any responsibility for ensuring theyíre legitimate. Itís up to the buyer to determine if credits may be fake.

Under the rules of the program, producers go through an application process that requires a review from an outside engineer, but not the EPA. The agency told the Houston Chronicle that it doesnít have ďthe capacityĒ to certify the production of renewable fuels.

Itís a little like the U.S. Mint saying itís up to you to make sure every dollar you receive isnít counterfeit. If the EPA doesnít have the ďcapacityĒ to ensure that whatís being traded is real, then it might as well admit its ďmarketĒ is fundamentally flawed. Markets bring the need for oversight and regulation because they also create the opportunity for abuse. It didnít take Enronís traders long to learn how to exploit regional electricity markets. Should we be surprised that fake biodiesel credits have flooded the market?

Of course, it isnít really a market at all. This isnít about the exchange of commerce, itís a ridiculous government-funded exercise in wishful thinking.

In this green energy fantasy land, we see running rampant the same types of abuses in the cap-and-trade plan to manufacture a market for carbon emission credits. The theory is that a market will find the most efficient way to achieve the results ó cutting emissions or boosting the use of biodiesel.

Not surprisingly, the American Petroleum Institute has blasted the entire program, noting that refiners could buy credits on good faith only to find them worthless and with little recourse.

The EPA recently rejected the APIís appeal of a rule that requires refiners to seek credits for cellulosic ethanol, a fuel that is still little more than a science experiment and which certainly isnít available in commercial quantities.

Just as with the cap-and-trade fiasco, the EPA wonít acknowledge the absurdity of the biodiesel market myth. Instead, it clings to one of the more frustrating political euphemisms ó using the term ďmarketĒ to distract from the reality that itís really levying a tax.

Mandating bio-fuels and trading credits doesnít lower refinersí production costs, nor does it create a business opportunity. Instead, itís establishing a disincentive designed to change behavior even though it isnít in refinersí economic interests.