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The Fake Factory That Pumped Out Real Money

bloomberg.com

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Re: The Fake Factory That Pumped Out Real Money

#11

Post by jacquesm »

kelson wrote: post #10
jacquesm wrote: post #7

Earlier quoted context omitted.

Well, given that the buyers bought just the numbers and not did not go to the authorities immediately it would seem that everybody in the deal was happy except for the EPA. If you make it so that a number is assigned to something liquid that is as fungible as can be then you really can't claim surprise if someone then decides to short-circuit the whole thing and bypass the manufacturing step. Think of it as an optimi…

> "In return for the hollow credits, ConocoPhillips paid Green Diesel $18 million, according to court documents. Shell got stung for $14.4 million, BP for $13.6 million, Marathon Oil for $12.4 million, Exxon $1.2 million. All these companies also were forced to buy new RINs to replace Rivkin’s phony ones." > Federal agents were watching, as was Houston attorney David Fettner. He’d been appointed by a court to find an…

They should have bought FUEL, not RINs.

Re: The Fake Factory That Pumped Out Real Money

#12

Post by rayiner »

jacquesm wrote: post #2

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…

Cap and trade systems have the huge advantage that no revenue goes to the government. That eliminates the incentive to set tax levels for revenue generation purposes instead of at levels linked to the real purpose.

Re: The Fake Factory That Pumped Out Real Money

#13

Post by seibelj »

Bromskloss wrote: post #4

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

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

Re: The Fake Factory That Pumped Out Real Money

#14

Post by foobarbecue »

brianwawok wrote: post #9
Bromskloss wrote: post #4

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

If you don't read the article not sure this kind of comment adds anything to the community. Yes it's a long article. If too long for you skip it.

Your comment, on the other hand, was suuuuper helpful.

Re: The Fake Factory That Pumped Out Real Money

#16

Post by cgriswald »

jacquesm wrote: post #11
kelson wrote: post #10

Earlier quoted context omitted.

> "In return for the hollow credits, ConocoPhillips paid Green Diesel $18 million, according to court documents. Shell got stung for $14.4 million, BP for $13.6 million, Marathon Oil for $12.4 million, Exxon $1.2 million. All these companies also were forced to buy new RINs to replace Rivkin’s phony ones." > Federal agents were watching, as was Houston attorney David Fettner. He’d been appointed by a court to find an…

They should have bought FUEL, not RINs.

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.

Re: The Fake Factory That Pumped Out Real Money

#17

Post by jacquesm »

cgriswald wrote: post #16
jacquesm wrote: post #11

Earlier quoted context omitted.

They should have bought FUEL, not RINs.

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 d…

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...

Re: The Fake Factory That Pumped Out Real Money

#18

Post by fsargent »

Alex3917 wrote: post #8
Pxtl wrote: post #3

Earlier quoted context omitted.

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.

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 emi…

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...

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.

Re: The Fake Factory That Pumped Out Real Money

#19

Post by pmorici »

jacquesm wrote: post #2

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…

"The interesting bit here is that is actually quite hard to figure out why what they did was illegal"

I wouldn't go that far. Each RIN needs to correspond to some physical bio-fuel. They were generating RINS but not manufacturing the corresponding fuel. Seems like straight forward fraud. Now had they been actually making the fuel but then dumping it in the trash and just selling the RIN I agree it would be harder to see what it was they were doing wrong but they weren't doing that.

Re: The Fake Factory That Pumped Out Real Money

#20

Post by fsargent »

rayiner wrote: post #12
jacquesm wrote: post #2

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…

Cap and trade systems have the huge advantage that no revenue goes to the government. That eliminates the incentive to set tax levels for revenue generation purposes instead of at levels linked to the real purpose.

True, but looked at holistically it'd be better to have the revenue go to the government, and reduce a tax that punishes behaviors we want - such as employment being punished by the income tax. https://en.wikipedia.org/wiki/Pigovian_tax
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