Industry calls for certification system as local producers at brink of bankruptcy

For Nikkei Asia

JENS KASTNER, Contributing writer

December 5, 2024 10:31 JST

HAMBURG, Germany — A loose alliance of German biofuel manufacturers, environmentalists and lawmakers is pressuring the government to stem the inflow of palm-oil-tainted biofuel from China and calling for the establishment of an effective inspection and sanction regime to oversee Chinese biofuel plants by Jan. 1.

European Union rules require the oil industry to meet defined greenhouse gas reduction quotas and offers options for achieving this, including allowing them to blend mineral fuels with biofuels. As the use of palm oil in biofuel production has in effect been banned in Germany and most other EU member states since 2023, imports of used fats and cooking oils from China as an alternative blending fuel have soared from late 2022.

This has caused a tumble in the market price of biofuels from around 2,250 euros ($2,363 at current rates) per tonne in late-2022 to around 1,700 euros now. The European Commission imposed anti-dumping duties of up to 36.4% on Chinese biodiesel in August, but it was too late to save German biofuel manufacturer Landwaerme, which declared bankruptcy.

Meanwhile, Frankfurt-listed biofuel manufacturer Verbio saw its share price slide to 11 euros from 33 euros over 12 months.

Industry stakeholders have pointed to potential fraud by Chinese sellers and said not enough safeguards have been put in place by the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV).

„We have been telling the BMUV for more than one and a half years about the massive fraud with fake and also prohibited palm oil diesel imports from China,“ said Oliver Grundmann, a lawmaker from the main opposition Christian Democratic Union, the party poised to win the upcoming general elections in February.

„But they have calmly watched as individual companies in the mineral oil industry have carelessly stocked up on cheap fake certificates and the legally operating companies in Germany have been driven to ruin,“ he said.

Industry bodies, such as the German Agricultural Society (DLG), have questioned how China could possibly have so quickly set up technically complex and expensive biodiesel production plants to double its EU-bound exports of biodiesel and hydrotreated vegetable oil to 973,000 tonnes in 2022. That figure then jumped again, to close to 1.5 million tonnes in 2023.

They also noted that China’s imports of virgin palm oil from Southeast Asia have increased over the same period. The DLG pointed to maritime satellite tracking that showed vessels embarking from Indonesia, the world’s largest palm oil exporter, would often call at Chinese harbors first before setting sail for Europe after a short stay.

According to DLG, this points to the possibility that those ships are carrying palm oil that is then being blended with China’s cooking oil. This would breach a ban on the use of palm oil in biofuels in Germany and other EU member states.

Lawmakers want the BMUV to register and inspect the factories in China from where mineral oil producers are buying biofuels. They warned that the lack of an adequate inspection regime for supposedly green inputs not only threatens local biofuel producers, but also makes a mockery of the investment rationale for Europe’s rollout of „green“ hydrogen, an alternative fuel.

German authorities are not helped by a similar recent failure. The Environment Agency recently acknowledged that an upstream emissions reduction certificate scheme was exploited by dozens of fraudulent projects in China.

Berlin had asked the EC in June to investigate the flow of fraudulent biofuels into the EU. A spokesperson for the EC told Nikkei Asia on Nov. 27 that an investigation was ongoing.

A BMUV spokesperson said that to prevent trade in incorrectly declared biofuels, the issuance system of sustainability certificates must be reviewed at the EU level, because the problem is pervasive within the bloc. But the critics criticized the BMUV’s lack of urgency.

„Belying the BMUV’s argument that solutions have to be found exclusively at the EU level, France, Austria and Belgium show with their respective national certification systems that national requirements are realistic and necessary,“ said Grundmann, the CDU lawmaker.

The EU’s Renewable Energy Directive assigns to member states the responsibility for the supervision of certification bodies, the monitoring of compliance, and the enforcement of penalties.

France, Austria and Belgium require accreditation from plants that they procure biofuels from, meaning that they, unlike Germany, have been successful in keeping out fraudulent products.

Austrian lobbying group Plattform Erneuerbare Kraftstoffe (PEK), or Platform for Renewable Fuels, confirmed to Nikkei that the country’s own accreditation rules have virtually ended biofuel imports from China, and only old inventories are being run down now.

„Our local manufacturers have been doing well, and with the new EC in office now, we are optimistic that they will adequately protect the market,“ said Alexander Bachler, PEK’s CEO.

The EU’s new team of commissioners assumed office under President Ursula von der Leyen on Dec. 1.

Grundmann expects the BMUV to act soon, if only to avoid being sued in international and national courts by injured parties — from e-charging companies and biofuel producers to municipal utilities — and to face having its officials held accountable.