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June 27th, 2012

Bling, Bentleys and Bogus Credits

By Ron Zucker

When we talk about cap-and-trade systems, one of the most striking flaws is its reliance on credits, buying allowances from unregulated sectors to allow polluters to continue to pump their sludge into the environment. We’ve pointed out that they are unverified and unrelated to the pollution problem we’re trying to address.

But a Maryland man clearly thinks we were understating the problem. It’s not enough for credits to be kind of fake. He wanted to make sure they were actually fake.

Rodney Halley has been convicted of selling $9 million worth of fake biodiesel credits to commodity brokers and oil companies. Now, you might wonder if this was a case of overselling his work, or of double counting. That would speak well of your faith in humanity. Unfortunately, if you’re of the Panglossian view, it’s misplaced faith.

Mr. Halley, in fact, produced NO biodiesel. He simply sold paper credits. Mr. Halley had a unique defense. He didn’t deny that he sold fake renewable credits. He simply claimed that there was no fraud because the buyers knew that the credits were fake!

“Everybody needed [credits] and … the supposed victims in this case knew just what they were buying,” said Douglas R. Miller, Halley’s attorney, in an interview with the Baltimore Sun. “Rodney Hailey did not deceive anyone.”

We can’t know for sure if Mr. Miller is right. That’s not just because we can’t see into the hearts of the people on the other end of the trade. It’s because they’ve settled with the government, paying about $3.7 million in fines and replacing the credits they bought. Will those credits be any less bogus than these? We have no way of knowing for sure.

But we do know which way we plan to bet. That’s because the sellers are allowed to create their own credits, issuing their own “Renewable Identification Numbers,” or RINs. When you make corporate profits available just for claiming to do something, is it overly surprising when people find a way to take those profits without doing anything to earn them?

Mr. Halley got the environment coming and going. The money he made through his fraud was spent, according to this story, on “$81,000 in diamond jewelry, two Bentleys and more than 20 other vehicles.” The carbon and environmental footprint of diamonds is significant, as it includes the need to clear cut and disturb land, while it takes about as much carbon to build a car as it does to drive it.

Mr. Halley used a system of pollution trading that’s based on a fairy tale. He told that fairy tale to a bunch of people. We don’t know if those people believed the fairy tale or just didn’t care. And he used the proceeds of that fairy tale to buy more environmental degradation. Seems to sum up the cap-and-trade system pretty well to us.

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