By RYAN TRACY
WASHINGTON -- The US Environmental Protection Agency late Tuesday made its first specific promises to address fraud in the alternative fuels market, a signal that months of negotiations with industry representatives are making progress.
In a letter to Rep. Gene Green, a Texas Democrat who was among lawmakers pressing the agency to act, EPA Assistant Administrator Gina McCarthy said the agency would formally propose a new regulation for the alternative fuel market by the end of this year.
A copy of the letter was viewed by Dow Jones Newswires.
Refiners and oil importers are required to buy certain amounts of fuel made from plants every year under a 2005 law designed to reduce US oil imports.
The EPA enforces the mandate by assigning each gallon of fuel a number, which refiners can buy and sell on a market the agency oversees.
The market for alternative diesel-motor fuels - typically made from cooking oil, soybeans, and other feedstocks - has been in turmoil since last year, when it became clear that some companies were selling fraudulent numbers.
Ms. McCarthy said the proposal would allow a legal defense for refiners who buy alternative diesel-motor fuel from producers that don't follow the agencys rules. Oil refiners had sought that so-called affirmative defense to reduce their financial burden as a result of future fraud cases.
She also said the agency was working to set up guidelines for rooting out phony producers using a third-party auditor. Following those guidelines would be voluntary, she said, but would "ensure that refiners and other participants who meet the conditions" wouldn't face civil penalties.
A representative of Mr. Green didn't immediately respond to requests for comment.
Stephen Brown, a spokesman for Tesoro, which has been involved in the negotiations, said the letter appears to suggest that bipartisan oversight from the House Energy & Commerce Committee, coupled with a united front from the obligated party community, has helped move the Agency toward a constructive solution.
Obligated parties is the term EPA uses to refer to refiners and others required to comply with the alternative-fuel mandate.
The proposal would be made final as soon as possible in 2013, Ms. McCarthy wrote, a nod to industry concerns about the new rule taking effect in time to comply with the alternative-fuel mandate for next year.
Even if the new rules aren't made final by Jan. 1, EPA is seeking to make sure the entire year is covered under the new policy, Ms. McCarthy said.
Dow Jones Newswires