Energy Scams: Illegal and Deceptive Energy Practices: Part 1: Is China Selling Fake Biofuels to Europe?

       Many energy scams are happening around the world, including illegal mining, illegal selling of hydrocarbons, sanctions workarounds, bribery and corruption, illegal oil production and refining, theft of energy fuels, gaming emissions statutes and accounting systems, and misrepresenting fuels. This post, the first of several in the planning, falls in that last category.

     Bloomberg first reported on claims of fake biofuels in April 2023. The concern is that biofuels are being mixed and diluted with cheaper feedstocks by China and China’s suppliers while qualifying for E.U. incentives for sustainable biofuels. These renewable diesel fuels may be misrepresented. It is known that China has been importing large amounts of palm oil production waste from Indonesia and Malaysia. The flows of biofuels to the E.U. from China have increased to the point that market prices have dropped considerably, and local producers have been undercut to the point where they can’t compete. Fuels made from waste products fetch higher prices than fuels made from crops so that is one incentive. The problem is that it is not easy to determine whether the source of the fuels is from waste or from crops and that makes it easy to deceive the buyers. That can incentivize fraud. Due to the massive influx of Asian biofuels, several European biofuels producers have been forced to reduce output and some are facing bankruptcy. Less on-site testing of feedstocks due to the pandemic in recent years could also be an influencing factor.

     One potential red flag is that while it is known that palm oil production has been flat in recent years the volumes of palm oil mill effluent, or wastewater from the mills, have been flowing in greater amounts from Indonesia and Malaysia to China. Some have questioned whether there have been additions added to that wastewater. According to the Bloomberg article, the E.U. is stepping up inspections:

 

“In response to concerns over suspected mislabeling, the ISCC this month said that indications point to “a potentially dubious or fraudulent origin of these trade flows.” It’s implementing measures including unannounced integrity audits at processing units in China and Singapore and expanded auditor capacity in Asia.”

 

     Germany’s Deutsche Welle reported in late August 2023 that this is still a huge concern. They noted that biofuel exports from China to the E.U. approximately doubled in the first half of 2023, compared to 2022. The fraud suspicion is enhanced due to the fact that these advanced, or 2^nd generation biofuels, require specialized facilities to produce, and that typically require three to five years to design and build. The fact that China was able to increase production in a very short time and to sell at a much lower price – about half that of comparable biofuels produced in the E.U. - and with the considerable added expense of shipping (estimated at 20% of the cost), strongly suggests that that numbers don’t add up and something “fishy” might be going on.

     One biofuel industry lobbyist thinks it is simply that palm oil is being added to the shipments so that a higher percentage of the product derives from crops rather than from waste. While the E.U. does import biofuel made directly from palm oil at a lower price premium, the plan is to phase out that biofuel by 2030. One biofuel executive on a visit to China was directly told that ships carrying Indonesian biodiesel made from palm oil would be “rebranded” in China and sold to Europe as waste-based biodiesel. German agricultural authorities have launched an official investigation but thus far have not found enough evidence. However, one company operating biodiesel plants in the E.U. with imported fuel has had their license revoked. The fact that China limits inspections, particularly unannounced audits, makes it difficult to investigate claims. E.U. biofuels producers think that the entire biofuels certification process needs to be reviewed. Since palm oil production has resulted in significant deforestation and proliferation of wildfires (in some years these Indonesian wildfires have been the highest global source of CO2 emissions for the entire year) the whole process of palm oil production cannot be considered to be sustainable. Certainly, biofuels made directly from palm oil are the opposite of sustainable. While biofuels made from palm oil waste may be a way to mitigate some of that unsustainability, it does not make these biofuels sustainable at all, even if E.U. mandates call for increased amounts of renewable diesel.

    Claus Sauter. CEO of German biodiesel producer Verbio thinks that this type of “greenwashing,” basically fraud, could happen in the future in the green aluminum, steel, and hydrogen industries:

 

“Each of these products has a fossil sibling. There could be Chinese ships full of supposedly green hydrogen that might actually have been produced from Russian gas," he said, adding that China's fake products might eventually kill off local German industries and in the end increase dependence on the Asian powerhouse.”

 

     Clearly, this is an issue that needs to be dealt with quickly and harshly. Allowing this increased vulnerability to fraud in the interest of sustainability should not be happening. Any fraud of this sort should not be tolerated and should be punished accordingly as a crime, or more practically by a complete cutoff of such unverified feedstock sources. As long as feedstocks are unverifiable, the whole E.U. biodiesel import policy is basically a sham.

 

 

References:

Is China flooding Europe with fake biofuels? Insa Wrede. Deutsche Welle. August 23, 2023. Is China flooding Europe with fake biofuels? (msn.com)

Europe Battles Flood of Green Fuel Suspected to Be Fraudulent. Agnieszka de Sousa and Anuradha Raghu. Bloomberg. Financial Post. April 27, 2023. Europe Battles Flood of Green Fuel Suspected to Be Fraudulent | Financial Post