A fun sci-fi read would be about a futuristic government that "subsidizes" an Industry for much-debated, but ultimately politically driven reasons.
Rather than simply making cash-handouts, however, the Government & the Industry conspire to hide these handouts by creating new by-products for sale to consumers.
The Industry grows and rejoices, extending its products into as far ranging lines as sweeteners, fuels, and plastics.
To drive adoption they interrupt the free market through price manipulation and straight forward mandate from their "Environmental" agency.
Despite overwhelming evidence that consumers are being harmed by these by-products - record obesity, less efficient engines, and environmental damage - the subsidies only grow.
I'd like to see how the protagonist would drive change as presently my best solution is to rage via comment board into the echo chamber.
Am i missing the joke? Whats sci-fi about this? And how many industries are like this? Meat, diary, cars, arms, power, oil, medical, prisons. And these are just the ones that come to read from stories I have read recently.
It is sci-fi in the sense that it involves speculation as to future interefence in various scientific endeavors on a industry-wide scale (i.e., soft sci-fi) by extending numerous historical examples of such practices. Also...it takes place in the future.
Lot of assumptions on this thread. The company involved here is claiming that hasn't committed a crime, which isn't a very interesting claim. The agency that's launched and investigation hasn't gotten a chance to, you know, conduct that investigation yet. There's also a possibility that this was all a mistake that just needs sorted out. So before we all jump on the incentives-gone-wrong and government-is-inefficient trains, maybe give the government a chance?
But if we are going to speculate--and let's face it, we are--let's at least have a gander at the relevant regulations. IANAL, etc, but from my reading Title 40 Part 80 Subpart M [1] it seems really unlikely that assigning the same volume of fuel different RINs is legal. There's a bunch there about assigning specific numbers to specific volumes of fuel, but there's also the super specific:
> (5) Importers shall not generate RINs for renewable fuel that has already been assigned RINs by a registered foreign producer.[2]
The important bit here is that expiration failure "glitch", and the details thereof. If it's just a straight up glitch and the law called for the expiration of the RINs after one crossing then this is a pretty clear-cut case of fraud. If a bank error puts a million dollars in your account, or if a car falls off a shipping truck into your front yard, that doesn't make it yours. By the same token, a glitch in the expiration system doesn't make exploiting that glitch legal.
As much as I dislike the idea of new government departments, it sounds like they do need some kind of 'evil' department who's only job is to think up ways to abuse proposed new laws and regulations before they go into effect.
Similar to how generals have the intelligence section of their staff put on only the enemy hat and poke holes in their plans.
I don't think you need a new department for that. Take the tax code. Who knows how to exploit the tax code the best? The accountants at the IRS. Have the IRS give an employee a bonus each time they find an exploit and write a report on how it works and recommendations on fixing it. It shouldn't be that different from the way major software vendors pay rewards for reported bugs/exploits.
You could provide similar incentives for reports on efficiency improvements (and to prevent exploitation of a system like this, you could have the bonus provided only if the improvement/fix is actually implemented, or based on how significant it is, or something.) Prize and crowd-sourcing systems have worked pretty well when it comes to a lot of things, so why not apply them to improving government bureaucracy?
As it stands, our system does the opposite - it rewards people for finding and abusing exploits in the system instead of fixing them (see - every corporate scandal and stock market crash ever.)
The best way to have motivated employees for creative tasks is to give them a high base salary, good working conditions and hire suiting ones in the first place. For repetitive jobs the incentives might work, but these are also the jobs where you should think about automation.
Exploit because it's based on a loophole. Lots of things are legally excusable because they are worded poorly or too vaguely, but it's usually easy to see the /intention/ of such wording. Taking advantage of the difference between the intention and the defined is most certainly an exploit by definition.
Sure, you can see it that way, but that also means that you consider all taxes to be taking your money - i.e. taxes are illegitimate. Otherwise, if you think taxes have their purpose, then everyone should play by the same rules, and not try to "cheat the system".
That argument works for individuals who are only responsible for their own finances and moral conduct, but companies have legal obligations to their shareholders to maximise shareholder value. Arguably that means if they find a legal way to reduce their tax costs they are obligated to do so. It's an interesting and non-trivial ethical question.
I wish we'd stop that. There's the concept of a [Benefit Corporation](http://en.wikipedia.org/wiki/Benefit_corporation) which is sadly underused. It's a corporation that, while not non-profit, exists to create something other than pure wealth/shareholder profit.
More immediately, I'd like to see several rulings at once that state that future sustainable profits are more important than immediate ones, and that the suing shareholders can be held liable for court fees and damages for negative press if they sue the company/board an lose. Companies and their executives should be allowed fairly broad strokes to make a company valuable, including value of goodwill and paying attention to/not exploiting loopholes in the law.
While I'm not your commenter parent I do share his sentiment: The way a 'liberal' (in the European sense) republic is supposed to work is that the people choose to support it by their own will. This is a direct extension of the idea that the people rule (democracy). The government is nothing but an employee of the collective and - ideally - everyone agrees with its goals at least so much that they pay the taxes thought to be necessary to accomplish them.
Background: I'm Swiss and this is more or less how the relationship between government and people works here. Besides the people's right to take down / create any law collectively, the tax system also works in a way that tax evasions are not regarded as illegal the same way you do. People are obligated to 'list their stuff' every year - if it turns out they 'forgot' something, it is simply paid later - only some minor monetary punishment involved, never jailtime. It only becomes a crime if someone forges documents - which is hardly ever done. The banking secrecy plays a big role in this - it's basically the Swiss government saying 'we will never directly look into your books and trust the informations you give us'. It's the behavior of a subordinate who trusts that he's fairly compensated by his employer.
Interestingly, Swiss tax moral is said to be very high, despite this lax system.
"The government is nothing but an employee of the collective and - ideally - everyone agrees with its goals at least so much that they pay the taxes thought to be necessary to accomplish them."
I would love to live in a country where this is actually practiced. Perhaps immigration is in my future - do you have a preferred locale in Switzerland?
In the States we _say_ this is the way things should be, but in _practice_ the people in D.C. are a horde of bandits looting the bank.
Those guys don't like people like me, they don't _trust_ people like me, there is no reason why I should pretend I trust or like them back.
Sadly true, it's incredibly hard for non EU citizens (which is the first thing I'd like to change btw., I'd prefer a green card system like in the US). I don't agree with your second phrase however. I don't see why this kind of immigration policy is essential for the survival of this political system. A steered kind of immigration from everywhere, ensuring that those people actually agree with the spirit of that system, would actually make life here even easier.
edit: we have >20% immigrant population without citizenship btw. High crime from some of these groups is what lead to these immigration unfriendly policies. Direct democracy, sadly, doesn't eliminate stupid policies. (However I'd argue that it tends to filter out extremist ones).
Yes, let's blame the government for people abusing regulations. Except the regulations we like, of course. We'll call it "arbitrage" when we abuse regulations we don't like, and "fraud" when we abuse regulations we do like (like property).
They made a gigantic mistake and we shouldn't blame them? I disagree completely. They should be blamed for this asinine regulation yes. Because it really is their fault. Good intentions don't cut it when it comes to fiscal accountability.
I find it deeply amusing that tech people are always so forgiving of bugs in software, but seem to go out of their way to blame the government for bugs in regulation just because it's the government. Newsflash: everything is imperfect, and the operation of this whole complex world we live in requires a certain amount of good faith on the part of everyone.
I agree the regulation is asinine, but for reasons completely unrelated to the incident. From the article: "Each time the loaded train crossed the border the cargo earned its owner a certain amount of Renewable Identification Numbers (RINs), which were awarded by the US EPA to “promote and track production and importation of renewable fuels such as ethanol and biodiesel.” The RINs were supposed to be retired each time the shipment passed the border, but due to a glitch not all of them were."
The mechanism in question was reasonable, and it looks like there was a bug in the implementation. While that's definitely a mistake, I don't think it rises to the level of "asinine" and I don't think that gets the importer off the hook any more than it gets a cracker off the hook when he exploits an OS bug to steal credit card numbers.
Implementation bugs are design flaws are tax loopholes are human failings that the technocrat decries as solvable even though it's people originating all of it.
Lots of human failings are solvable through regulation. Have you been killed and eaten recently? Boom a common flaw of human society solved by government.
What is the gigantic mistake here? Per the story: The RINs were supposed to be retired each time the shipment passed the border, but due to a glitch not all of them were. Really, we have no idea whether this glitch was legislative, administrative, or database-related.
Update from the CBC story linked downthread: Once "imported" to a company capable of generating RINs, ownership of the biodiesel was transferred to Bioversel's American partner company, Verdeo, and then exported back to Canada. RINs must be "retired" once the fuel is exported from the U.S., but Bioversel says Verdeo retired ethanol RINs, worth pennies, instead of the more valuable biodiesel RINs. Bioversel claims this was all perfectly legal.
So basically Verdeo was lying to the EPA by claiming it was exporting ethanol rather than biodiesel. I would not like to be the person trying to explain to a court why that should be considered legal.
Nothing about my statement requires arbitrage to be reducible to fraud in the average case. "Arbitrage" can be a euphemism for fraudulent activity even if most arbitrage is not fraudulent.
The heart of the matter is good faith. "Fraud" is a crime created to capture activity in bad faith with respect to the property regulation. The importation here might be legal, but there is a demonstrable lack of good faith that justifies calling it fraud.
What problem did the EPA create exactly? They created a rule that the company disagreed with? That does not give them a right to break it. That's not how the law works.
Err...the EPA didn't create a law that the company disagreed with. They created a regulation that was designed to incentivise the importation of renewable fuels.
Someone at Bioversal Trading was clever enough to realize that they could make more money gaming this regulation then actually selling their cargo. Therefore, they ran the train back and forth a dozen times and wracked up money from the Government.
Dirty? Yeah. Fraudulent? Potentially, depending on how the regulation was written.
If anything, it speaks to the danger of hidden incentives in otherwise innocent-looking regulations.
>If anything, it speaks to the danger of hidden incentives in otherwise innocent-looking regulations.
That's like saying, there should be no lower tax brackets than 39% because I can lie and say I made less money than I actually did... speaks to the danger of hidden incentives in the tax code.
Well it does. The more complex the code the more ways there are to legally avoid its intent. Extreme example: if we had one tax bracket and no exemptions or deductions, there would be little anyone could do to avoid taxes other than literally earn less money.
His point was that objecting to a piece of legislation on the basis that some people will break the law is a pretty vacuous objection. Given one tax bracket or 200, people can lie to reduce their taxes.
This, of course, is not an interesting or useful critique of tax policy, just as what this company did in this case (fraudulently manipulate RIN credit retirements such that the train load was simultaneously classed as containing credit-valuable biodeasel and credit-worthless ethanol depending on whether or not the train was pointing North) is a vacuous critique of the EPA.
Noting that people will break a law is a vacuous criticism of said law. Noting that a law will make it easier for people to break the law (or take advantage of it) is certainly not.
Indeed, I'd argue that any analysis of the utility of a new law that doesn't take added opportunities for fraud into account (alongside the other negative effects of adding complexity) is simply worthless.
If anything, it speaks to the danger of hidden incentives in otherwise innocent-looking regulations.
Yep. Writing regulations is like writing code. In anything nontrivial, there are a lot of nonobvious edge cases that never occur to the writer until they bite him in the rear. And just like code, some of these sneak through even rigorous review and testing.
The hilarious thing is that upon this they will require that the fuel be loaded/unloaded at which point they will pay someone to unload it into a common pool and then reload 'different' biofuel from that common pool.
The EPA was the one issuing credits, apparently against its own rules. That is arbitrage of something with zero cost and greater-than-zero value in the market, not fraud. There is no "protest" against this rule evident in the article, etc.
Both the Canada Border Services Agency and the US EPA have launched investigations into the possibility of fraud, although the companies claim that the practice was totally legal.
So, according to the article, there is no evidence that there was fraud. But there is apparently a case of poorly designed or executed issuance procedures for these credits.
Also, the idea of the credits is a little odd. To promote the "measurement" of biofuels? Well, they are doing that...so, nobody is doing anything (evidently) against the policy intentions. So, unless there is some form of un-evidenced criminality...this looks like bad rules/management...more than anything else.
Well, bringing the same fuel load across the border over and over again but claiming a credit for it each time as if it were a different load would be misrepresentation.
Update from the CBC story: Once "imported" to a company capable of generating RINs, ownership of the biodiesel was transferred to Bioversel's American partner company, Verdeo, and then exported back to Canada. RINs must be "retired" once the fuel is exported from the U.S., but Bioversel says Verdeo retired ethanol RINs, worth pennies, instead of the more valuable biodiesel RINs. Bioversel claims this was all perfectly legal.
So basically Verdeo was lying to the EPA by claiming it was exporting ethanol rather than biodiesel. I would not like to be the person trying to explain to a court why that should be considered legal.
So basically Verdeo was lying to the EPA by claiming it was exporting ethanol rather than biodiesel.
Since the biodiesel in question actually is ethanol, that was properly purchased in the USA, there is no lie.
I am sure that the same situation happens by accident all of the time. When you buy ethanol you do not normally inquire as to whether it is biodiesel, even though a large fraction of it is. And if that ethanol is exported, you report it as ethanol because it is, and you cannot generally be expected to know whether it is biodiesel.
In this specific case Verdeo was presumably aware that they were exporting biodiesel (though there might be a lack of paperwork acknowledging that it was). However they believe that the regulations do not cover this case, and given that they had lawyers examining the regulations first, I see no particular reason to disbelieve them.
You may think it is ridiculous. But it is no more ridiculous than creating a legal distinction with real monetary value between two batches of identical chemicals. Yet that is exactly the distinction between corn ethanol and ethanol made from some other source.
Biodiesel and ethanol are not chemically identical. Ethanol is an alcohol, biodiesel is an ester (a compound of a fat molecule aka a lipid with alcohol). I'm no chemist, but I'm pretty sure you can't just pour ethanol into a diesel vehicle and expect it to function properly.
I have not researched the EPAs classification rules, so possibly there was scope for administrative confusion. But given that Verdeo managed to track the railcar in question well enough to safeguard their property interest and claim the import credits, surely they must have been aware that it was coming on the same railcar every time, a coincidence which strains belief.
As for the last point, the distinction is not between two batches of identical chemical, it's between two different methods of production. I don't care for ethanol subsidies at all because they distort the market in pernicious ways, but I think you're being rather disingenuous here. Given that the subsidy exists, it's entirely possible to develop a functional administrative framework for the correct allocation of the subsidy. Wasteful? Certainly - but that's a policy problem, not a legal one.
Ethanol and Biodiesel are NOT the same thing. At ALL.
Ethanol is grain alcohol. Biodiesel is (quoting wikipedia) "a vegetable oil- or animal fat-based diesel fuel consisting of long-chain alkyl (methyl, propyl or ethyl) esters"
When you buy ethanol you would certainly not expect to be delivered biodiesel and if you were, it would be unusable for your needs. You can't run an ethanol engine on [bio]diesel, and you can't run a diesel engine on ethanol.
Edit: my real point is, if they were reporting ethanol as biodiesel, or vice versa, it's hard to see how it could be a "mistake."
Each time the loaded train crossed the border the cargo earned its owner a certain amount of Renewable Identification Numbers (RINs), which were awarded by the US EPA to “promote and track production and importation of renewable fuels such as ethanol and biodiesel.” The RINs were supposed to be retired each time the shipment passed the border, but due to a glitch not all of them were. This enabled Bioversal to accumulate over 12 million RINs
edit:
The "glich" sounds to be with the EPA system. Its not clear if the problem is technical (like an ATM giving 40 for 20 requested withdrawl) or if the system did not differentiate between "crossing" and "production and importation", by design or specification. In any event, there's not much in the article that supports any forgery or false claim about the shipment's paperwork, etc. It was more that the EPA had no or poor controls. This latter case is a grey area between willful negligence (poor design of credit-issuance-proceedures) and potential fraud (unethical re-submission).
Just because you fail to lock your door does not authorize a burglar to come into your house and help himself to your stuff. You don't get to beg off responsibility by claiming the injured party made it too easy for you to help yourself.
Maybe a better example: Imagine your eazy-pass was mis-programmed. Going over the GG bridge, you get $$ credited to your account each trip rather than -$$ subtracted. So, depends on if the ez-pass was hacked by the user or just broken/mis-programmed by the EPA.
There's a graduated response to discovering that though, you could:
1) call up ez-pass and let them know
2) think "it's not my problem" and not let them know
3) decide to drive over the bridge more often
4) mention it to all your friends and suggest they drive over the bridge more often
5) strap your ez-pass transponder to a quadcopter and fly it in continual circles past the transponder reader.
I'm not sure where the line is, but somewhere between 3 and 5 is probably "fraudulent" behavior - at least according to my personal ethical standards (even #2 is clearly "wrong"), there's almost certainly a technical legal definition of "fraud" that applies somewhere along that line too.
This begs the question of precisely how the glitch was discovered and by whom. Did one of the involved businesses initially and accidentally enter the details from an old manifest and then realize that they still got credits? Or, perhaps one of the businesses submitted something twice and got credit for both.
When this is investigated by the EPA OIG (http://www.epa.gov/oig/), the chronology of the fault/exploit/fraud will be investigated along with the parties involved.
This may have involved bits of inside information such as company X hires former enforcement regulator Y from government agency Z who details the precise nature of how various governmental systems work. The possible permutations of how this situation evolved are many.
From my relatively uninformed perspective, the initial read of the article gives me the impression that this is an intentionally fraudulent scheme and criminal manipulation of the government program by the companies involved. However, I clearly do not have enough information to make such a determination.
You can bet the EPA OIG and their Canadian equivalent are going to try to get to the bottom of this.
That's a good point. If it was merely a mistake, then I'm sure the company would not mind the EPA adjusting the credit balance. After all, they did not intend benefit from the error.. they just wanted to ship their goods back and forth for some other reason.
The company is "importing" and re-"exporting" the same fuel over and over again, collecting a credit each time.
The credit is only intended for fuel that is imported into the US. Under international laws, import has a very specific meaning which the company does not appear to even come close to meeting (if the fuel never left the train). Thus, the fraud is that the company is repeatedly claiming the import credit for fuel it has never actually imported.
This is a typical case of how incentives have a tendency to go wrong. I recommend you to listen to this Freakonomics Radio podcast which tells a series of stories about incentive failure, for example an indian town which started farming cobras when a ruler started giving out money for each cobra head after an infestation.
The companies maintain that this practice was legal. Another company, Northern Biodiesel, appears to have been put out of business by the practice.
The EPA has investigated several other cases of RIN fraud, including one against Jeffrey David Gunselman, the CEO of Absolute Fuels who was arrested in July, accused of selling more than $50 million in fake RIN credits.
So yeah, keep telling yourself that this is another case of the dum dum gubmint who needs to stay out of our way and how no one ever goes bankrupt after defrauding the gubmint because I mean, it all sounded great when Rush said it right?
I don't understand what you are saying (aside from trolling, which is heavily frowned upon). It reads to me like the government is either creating perverse incentives, failing to implement correctly or failing to monitor. If it is the first, we'd be better off without the interference. If it is the second, what is wrong with the government that it can't implement it's policies correctly (perhaps too complex)? If it is the last, then why is the government not policing the policies better?
And finally, do RIN credits provide better incentives than no credits? That is the real question that should be asked with regard to the government being involved. The government's track-record isn't great.
The assumption that this is a legal loophole is mistaken.
"It reads to me like the government is either creating perverse incentives, failing to implement correctly or failing to monitor"
Because someone committed fraud and they're now being investigated for fraud by the government?
"If it is the first, we'd be better off without the interference"
If only we were omniscient and knew which incentives were perverse.
"If it is the second, what is wrong with the government that it can't implement it's policies correctly (perhaps too complex)?"
If only the government could always put it's policies into effect perfectly like the free market. Wait, what?
"If it is the last, then why is the government not policing the policies better?"
Because justice isn't instant? Because 30+ years of one party pushing deregulation takes it's toll? It sounds like your solution to the latter is more deregulation.
"And finally, do RIN credits provide better incentives than no credits? That is the real question that should be asked with regard to the government being involved."
If only there were some way for the public to comment on future government rules.
"The government's track-record isn't great."
The track record for successful modern societies without pesky governments is stunningly less great.
Hilarious. Sounds legal and I doubt they would have done it otherwise. Good example of why most regulation is ridiculous because it's generally easy to find and exploit loopholes.
I identify as a libertarian... But all these folks blaming the government in this case without truly knowing what took place but just jumping to the regulations are to blame conclusion, make me ill.
Yes the law of unintended consequences often occurs with regulations however blatantly taking advantage of someone or something is wrong, legal or illegal. This is where we need a jury of peers to determine whether we want to encourage or discourage the behavior that this company took part in. I'd find this company guilty in a heart beat.
It's like jury nullification in reverse.
All it takes for evil to triumph is good men to do nothing.
The law of unintended consequences may well apply to such "jury nullification in reverse", by creating jurisprudence. This partcular case seems like very clear-cut fraud to my layman's mind, though.
I'm a libertarian at heart but I have no time for shenanigans of this kind. I want efficient regulations, not an absence of regulation; and streamlined regulations can only work where you have a regulator with sufficient discretion to enforce the spirit of the regulation rather than allowing people to take refuge in pedantic legalism (thus generating more and more regulation to deal with all the potential corner cases).
If Bioversal/Verdaso employees who cooked this up ever apply to YC, they have a good answer for the "Tell us about the time you most successfully hacked some (non-computer) system to your advantage?" question.
If the US government is involved in the prosecution, we can pretty much guarantee that we will make it worth their while. It's usually something like "oh you made 500m profit from fraud? How about 50m fine, any bigger might make you go out of business, like you would have without committing fraud."
Well, maybe. Uncle Sam tends to look the other way when it's not him being fleeced. But when it is him, holy crap watch out. He'll break you up and sell you for pieces.
It was an unartful hack, there were better ways to do this. If they had unloaded a bit, and shipping only portions of biofuel, maybe done some blending etc. they would have a much better defense and likely would have never even been caught.
I worked at Enron on their power trading floor, and saw them do pretty much the same thing with Ricochet and FatBoy which made the nightly news, congressional hearings etc. John Forney the guy who did it got a $4,000 fine and two years probation in a plea deal which he took because it was cheaper than paying his lawyers to go to court.
Anyways this is JV ball vs. what the paper industry has done with Black Liquor that has run into the BILLIONS.
Rather than simply making cash-handouts, however, the Government & the Industry conspire to hide these handouts by creating new by-products for sale to consumers.
The Industry grows and rejoices, extending its products into as far ranging lines as sweeteners, fuels, and plastics.
To drive adoption they interrupt the free market through price manipulation and straight forward mandate from their "Environmental" agency.
Despite overwhelming evidence that consumers are being harmed by these by-products - record obesity, less efficient engines, and environmental damage - the subsidies only grow.
I'd like to see how the protagonist would drive change as presently my best solution is to rage via comment board into the echo chamber.