EU urged to act on ‘obvious’ biofuel fraud

The Southeast Asian country revealed that its capacity to produce palm oil mill effluent and other residues (such as used cooking oil) is only 300,000 tonnes. But Indonesia exported almost five million tonnes of this material in 2023, with much of it bound for the EU’s 200 or so refineries producing biodiesel.

Indonesian authorities announced they are immediately curbing export shipments of used cooking oil and palm oil residue, because they suspect that virgin palm oil is mixed into them.

This means that the EU’s world-leading biofuel diesel industry, producing around 13 million tonnes of biodiesel annually, has been using palm oil, blamed for 50% of tropical deforestation in regions such as Malaysian Borneo, and associated peatland draining and burning, biodiversity declines, greenhouse gas emissions, and air pollution. The use of palm oil is de facto banned in several EU countries.

With used cooking oil (UCO) products estimated to account for more than one-third of European biofuel consumption, it becomes clearer every day that UCO fraud is making a farce of biofuel sustainability claims.

Luc Vernet of the Brussels-based Farm Europe think-tank said they have been alerting the European Commission for years about palm oil scams jeopardising the EU’s energy transition, investments, and farmers. “Now, even producing countries acknowledge it”, he said.

Indonesia is clamping down on the UCO shipments, in order to to avert a potential shortfall of palm oil for domestic industries. Authorities in the country had previously alleged that some cooking oil sold under a government programme had been mislabelled as used cooking oil and shipped overseas for biodiesel feedstock.

Separately, last June, a group of US senators alleged fraudulent UCO had been shipped from China to the US, including some cargoes that might include virgin palm oil.

Luc Vernet of Farm Europe called on the new European Commission to act decisively on the “obvious” fraud in the supposedly sustainable biofuel industry. He said EU farmers who grow oilseeds for biofuel are directly impacted by the fraudulent competition.

With transport one of the few sectors where EU greenhouse gas (GHG) emissions increased markedly over the last three decades, the Commission ruled that transport emissions must be cut 90% by 2050, compared to 1990. In 2003, the EU introduced its first biofuels-related targets to make transport more climate-friendly.

These renewable fuels reached 7.5% of the energy mix in EU road and rail transport by 2021 (compared to only 4.3 % worldwide). They are mostly bioethanol for blending with petrol and biodiesel with fossil diesel.

The current target is a 29% share of renewable energy in transport by 2030. EU directives require member states to place an obligation on fuel suppliers so that the target is met at national level.

The EU’s thinking is that biodiesel will help in meeting Paris Agreement emission reduction targets while reducing emissions of other pollutants harmful to human health. The EU also welcomes the supply flexibility of biodiesel feedstocks as a buffer against oil and gas supply shocks. Moreover, using used cooking oils (UCO) as feedstocks was welcomed to reduce the polluting loss of this used oil to the environment while turning waste into a competitive and low-emission form of transport energy.

Biofuels, therefore, ticked all the boxes for the environmentalists behind the EU’s Green Deal plan to be climate-neutral by 2050.

Between 2011 and 2020, the EU-27 consumption of sustainable biofuels from used cooking oil increased from 0.09 to 2.53 million tonnes of oil equivalent. By 2019, more than half of the UCO used as biodiesel feedstock was imported from outside the EU.

EU figures indicate these imports increased from 250,000t in 2011 to 2m tonnes in 2022, with a large proportion coming from China, the UK, Malaysia, and Indonesia.

Unfortunately, as the European Court of Auditors pointed out in 2023, it was a fraud waiting to happen, because the nature of UCO makes it difficult to confirm that the shipped material is indeed a waste product.

Nevertheless, by February 2022, demand from the EU had helped to boost the price of a tonne of UCO to €1,400, almost double the price of February 2020. Thus it was that the price of UCO even exceeded that of unused oil, due to increased demand for biofuel production.

Fraudsters globally latched onto the opportunity, particularly when the EU became increasingly reliant on imports of UCO.

The new figures from Indonesia, estimated to provide about 10% of the EU’s imported UCO, indicate the huge scope of fraud surrounding the product.

China is estimated to supply 34%, 19% comes from major palm oil producers Malaysia and Indonesia combined.

With the EU’s demand for UCO possibly doubling to 6m tonnes by 2030, the EU must act quickly to prevent its sustainable biofuel policy from becoming a farce due to fraudsters in these countries sending unsustainable palm oil instead of the more expensive UCO.

One solution could be to ban dubious imports, and rely more on EU-grown biofuel crops: however, current policy points to the EU further restricting these EU crops.

Other fraudsters have been looking to gain from the EU’s climate policies by dealing in biodiesel which they said came from UCO, but which actually came from other sources.

OLAF, the European Anti-Fraud Office, was tipped off that a Norwegian company was exporting to the EU very large quantities of biodiesel purportedly produced from Canadian EU-grown UCO, and used in the EU to gain national subsidies for meeting renewable energy targets.

Last June, the European Public Prosecutor’s Office arrested four ringleaders of a criminal organisation that also imported US biodiesel into the EU, fraudulently declaring it as UCO biodiesel from Morocco. The estimated damages to the EU was €3.1m.

OLAF has warned that as EU investments in environmental and sustainability projects increase, so does the risk of fraud. The best-known case with an environmental impact in which OLAF has been involved was of course the Dieselgate scandal that surfaced in 2015. Volkswagen AG installed so-called “defeat devices” in its cars to bypass strict EU rules on emissions. The devices made the vehicles respond differently in emissions testing, allowing higher-than-permitted emissions to go undetected. Volkswagen said in 2020 that Dieselgate had cost the company more than €31 billion in fines and settlements.