Des Moines firm helps biofuel companies meet Renewable Fuel Standard rules
EcoEngineers provides credibility in an industry that’s been harmed by recent scandals.
Friday, November 29, 2013 7:00 AM
You could say that EcoEngineers was born along with the federal Renewable Fuels Standard and is growing up with the industry.
Launched in 2009, the small East Village-based firm plays a big role in efforts to provide liquidity and transparency in the U.S. biofuel market. One of its key services is providing third-party audits of the Renewable Identification Number, or RIN, market. The identification system is used to track every batch of biofuel made in the United States, and RIN credits are traded within the industry to meet requirements of the Renewable Fuels Standard.
Transparency and liquidity have become hot issues within the biofuel industry, which in the past couple of years has been rocked by several major trading scandals involving the RIN market.
It was 2008 when EcoEngineers’ managing partners, Shashi Menon and Jim Ramm, recognized an emerging opportunity in two huge renewable fuel mandates that were then in the works: the U.S. Environmental Protection Agency’s Renewable Fuels Standard II and its overseas counterpart, the European Renewable Energy Directive.
“They were both 10-year programs, so there was some stability there,” Menon said. “Both required the blending of renewable liquid fuels into the fuel mix; that convinced us this was a good area to dip our feet in.”
Menon, who handles the sales and operations side of the business, was initially recruited to Des Moines from Chicago by Principal Real Estate Investors to buy commercial real estate prior to the bottom falling out of the real estate market in 2008. Ramm, the firm’s senior engineer, has practiced as a professional engineer in Greater Des Moines for about 18 years.
The firm started out by offering a software product to automate some of the fuel standard’s tedious reporting requirements. That work led to its niche in RIN verification.
“Although when we built (the software product) our intent was not to offer verifications and audits, it allowed us to offer ourselves as a premier auditor because we had so much data (from client companies),” Menon said.
EcoEngineers now provides audit services for companies that produce approximately 300 million gallons of biofuels annually, or about one-third of the U.S. biofuel market. Considering that the largest biofuel producers such as Renewable Energy Group Inc., Cargill Inc. and Archer-Daniels-Midland Co. don’t purchase third-party audit services, EcoEngineers actually serves about half the available market of small to midsized producers that use this service, Menon said.
“When we started, the market was a lot smaller,” Ramm said. “There wasn’t a lot of distrust; people weren’t afraid of the market. But then there were some huge fraud cases on the East Coast, and the markets froze. So the real value we could bring was not the software or the engineering services; it was the transparency that they were looking for.”
In some instances, those major criminal fraud cases didn’t even involve real biofuels. In February, a Maryland man named Rodney Hailey was sentenced to 12 years in prison and ordered to pay restitution of $42.2 million to 20 companies for selling $9 million in credits. His company, Clean Green Fuel LLC, never produced any fuel.
In another case, a Texas man named Jeffrey Gunselman was sentenced in April to more than 15 years in federal prison, fined $175,000 and ordered to pay more than $54.9 million in restitution after pleading guilty to falsely generating RINs and selling them to oil companies and brokers.
Most recently, in September, the Justice Department issued indictments in a fraud case in Indiana in which the defendents allegedly sold more than 35 million gallons of biofuel without RINs at an inflated price to customers who thought they were purchasing a fuel with RINs and the tax credits that would have come with them.
The question of whether Wall Street banks or other financial institutions are gaming the RIN market for their own profits has also been raised by U.S. Sen. Chuck Grassley. In September, Grassley sent a letter to EPA Administrator Gina McCarthy, calling on the agency to increase the transparency of the RIN market and provide assurances that the market is functioning for its intended purpose.
For the past three years, EcoEngineers has partnered with RINAlliance, an affiliate company of the Petroleum Marketers of Iowa. RIN fraud has not been an issue for its clients due to EcoEngineers’ comprehensive quality assurance program, RINAlliance President Dawn Carlson said earlier this year.
Consulting, which contributes about 20 percent of EcoEngineers’ revenue, is a growth area that complements the firm’s software and verification businesses, Ramm said.
“We’ve had a lot of interest from international companies wanting to operate in the renewable fuels space internationally by selling into the U.S., or selling from the U.S. into other countries, or both,” he said. “We’ve been very active in California, which adopted its own renewable fuel standards.”
In Iowa, one of the most promising areas in which EcoEngineers is advising startups is developing biogas technology for transportation fuels, Ramm said. “I always say that Iowa is pretty well developed in agriculture-to-energy, but not so much in waste-to-energy, because we have so much food processing waste and cow and hog manure, honestly,” he said. “The potential to produce and use digester gas is huge.”
Another high-potential area is working with Iowa biofuel producers to improve their ties with the California market, Menon said. For instance, EcoEngineers conducted some custom modeling for one Iowa ethanol producer that found that its actual carbon emissions were far less than the level that California had allocated to the Midwest. “Because of that, they’ll be able to get a premium for that ethanol as they sell it into California,” he said. “So that’s an example of how we can open up some doors.”
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