By Leah Douglas

(Reuters) – The U.S. Environmental Protection Agency has launched investigations into the supply chains of at least two renewable fuel producers amid industry concerns that some may be using fraudulent feedstocks for biodiesel to secure lucrative government subsidies.

EPA spokesperson Jeffrey Landis told Reuters that the agency has launched audits over the past year, but declined to identify the companies targeted because the investigations are ongoing.

The production of biodiesel from sustainable ingredients, like used cooking oil, can earn refiners a slew of state and federal environmental and climate subsidies, including tradable credits under a program administered by the EPA called the Renewable Fuel Standard. But fears have been mounting that some supplies labeled as used cooking oil are actually cheaper and less sustainable virgin palm oil, a product that is associated with deforestation and other environmental damage.

The issue came into focus following a surge in used cooking oil exports from Asia in recent years that analysts have said involves unrealistically high volumes relative to the amount of cooking oil used and recovered in the region. The European Union is also investigating feedstocks over the fraud concerns.

The EPA audits began after the agency updated domestic supply-chain accounting requirements in July 2023 for renewable fuel producers seeking to earn credits under the RFS, he said.

“EPA has conducted audits of renewable fuel producers since July 2023 which includes, among other things, an evaluation of the locations that used cooking oil used in renewable fuel production was collected,” he said. “These investigations, however, are ongoing and we are not able to discuss ongoing enforcement investigations.”

U.S. senators from farm states have called for more oversight of biofuel feedstocks, saying federal agencies should be as rigorous in verifying imports as they are auditing domestic supply chains.

“The Biden administration has created vigorous standards to verify, not just trust, American producers, and it is imperative that the same scrutiny is applied to imported feedstocks,” six U.S. senators, led by Roger Marshall and Sherrod Brown, wrote in a June 20 letter to federal agencies.

Another letter from 15 senators to the Treasury Department on July 30 urged the administration to exclude imported feedstocks like UCO from an additional clean fuel tax credit program passed in the Inflation Reduction Act.