High risk for low-CI feedstock fraud

As CARB steps up LCFS audits in California, biofuel producers and feedstock vendors seek to lower risk and recoup higher fuel costs with COST by Reiter Software.

Used cooking oil (UCO) has rarely been more valuable or sought after than it is today. On a delivery basis, UCO has been trading at values close to, and in continued high correlation with, soybean oil, which itself has peaked at near-record highs in the first quarter of this year.

Several factors are contributing to the increased demand for and supply shortages of UCO, together which have resulted in the recent high prices. One obvious factor is that much less of the material has been generated over the past year due to the coronavirus pandemic and restaurant closures, leaving LCFS-focused producers fighting for low carbon intensity (CI) product. California’s LCFS program incentivizes low-CI feedstocks to be used in production of biofuel distributed in California, with up to $2 in carbon-credit value per gallon. Second-use feedstocks such as used cooking oil (UCO) are generally the lowest CI available in any appreciable quantity. Nationwide, the fuel qualifies for federal RIN and blenders tax credit revenues as well, but most distribution is pulled through California in order to obtain additional credits. Yet another factor pushing up prices by creating tightness in the UCO market is the growing number of renewable diesel projects underway, many of which will seek low-CI feedstock such as UCO in order to capture value from the California market.

As we have seen time and time again over the past decade or more from the federal Renewable Fuel Standard program and biomass-based diesel RIN prices, when there is value in a credit or product, then what typically follows is the presence of criminal opportunists who will defraud the system. Although the RFS has taken measures to combat RIN fraud through Quality Assurance Plans and Q-RINs, criminals may now be attempting to take advantage of California’s LCFS program and the low CI scores and higher values it provides UCO-based biofuels. 

A real threat exists from criminal enterprises that may blend higher-CI feedstock, or feedstock such as palm oil that is not even eligible due to mounting concerns over deforestation and unethical practices, with low-CI material such as UCO and illegally market the mixed oils as pure low-CI UCO. If the state were to analyze the material in an audit, both the fuel producer and the vendor could be on the hook for criminal and civil punishment. This could even affect the legitimacy of the credits and system itself and perhaps adversely impact the trading price.

California Air Resources Board, the state government agency overseeing the LCFS program, had not really begun auditing the feedstock supply until just recently. Suddenly, CARB has jumped more into the oversight aspect of its regulatory role. No one really knows how things will shake out if such feedstock fraud is identified in one of CARB’s audits, nor what the impact would be to LCFS credit values, a freely traded commodity supported by confidence in the system’s continuance.

As a UCO vendor, one sure way to protect yourself against such risk and strengthen the system as a whole is by using a digital verification system such as Reiter Software’s Cooking Oil Service Tier (COST). If you are a biodiesel or renewable diesel feedstock purchaser, it is incumbent upon you to advise your vendors that you want liability protection against such fraud, and that you expect use of such a system in which data is quickly and easily verifiable by a third party. 

When asked how Reiter Software reduces buyer risk, founder Kristof Reiter said, “COST provides traceability through the supply chain, generating a figurative paper trail that tracks data points—GPS, date, time, volume changes—and stores it in a secure database. And it does all that while actually saving you two to four times more than what it costs you in fuel, labor, and vehicle wear and tear.”  

Within the COST system a score is provided to the data that rates the quality of data acquisition for both internal improvement and external audit. The software tracks the geographic location of where the records were entered, among other metrics, which substantially reduces the likelihood of data fraud within the system. Confidence in the data can be relatively assured and may be considered a hedge against potential fraud due to the sheer effort that it would take to disguise a fraudulent operation as legitimate within the system. If your supplier if using COST, then you can be assured of their legitimacy. The volume tracker helps identify how much legitimate oil any supplier has to sell and is used as a check against any suspicious volumes that may appear. COST can provide a needed level of protection against any unscrupulous grease collectors and marketers looking to cash in on high UCO prices and short supplies.

Is digital, GPS-verified data acquisition required to pass a CARB audit? Not yet, but do you have five days to waste tracking down paperwork, answering government agents’ or third-party auditors’ questions, trying to prove your innocence instead of them trying to prove your guilt? With a digital UCO collection-optimization system like COST, you can pass an audit in five minutes, over a Zoom call, and get back to business.

When speaking recently with Ron Kotrba, the editor of Biobased Diesel Daily, about why we started building this system four years ago, I told him, “Well, we wanted to build a tool that costs less than it saves the user and simultaneously allows them to grow their businesses without scale-up friction. We really wanted UCO collectors to want to use the system to save their own hard-earned money and be more generally successful, not just because it helps them maintain regulatory compliance. In turn, we built this thing from the ground up to be exactly what UCO or grease collectors need to run their operations more efficiently, and we continue to add features to facilitate further client operating efficiency. I can’t even count the hours I’ve spent on the phone with our collectors listening to their challenges and then envisioning game-changing features. You may see people try to copy our product, but when you use our system, you can tell it’s built just for what you are trying to do.”

Reiter Software’s COST is called this because it actually saves users more money than it costs. It also substantially improves operations, helps reduce driver hours, miles, vehicle wear-and-tear, and more. The software helps implement best practices, and we know this because it was developed by listening to UCO collectors over a four-year period and continues to evolve to better serve this client base. COST will help your UCO collection company be more efficient and profitable than ever before.

What’s more is COST can help you grow. As one of our customers told us, “There was no way for us to grow the way we did in the past year without COST by Reiter Software.  Our competitors ask us what program we are using, and we won’t tell them. It’s too game-changing.” COST makes servicing thousands of accounts with multiple drivers easier than handling a few hundred using pen, paper, and Excel.

Kotrba will soon be covering this topic of CARB auditing, current conditions that make it ripe for potential feedstock fraud, and the risk to biofuel producers and feedstock vendors soon. Be sure to check biobased-diesel.com in the coming days and weeks for additional information. And give Kristof Reiter a call at 888-428-5617 or send him an email to learn more about how COST by Reiter Software can help you avoid risk, become more efficient, and expand your business.