Brussels must tackle biofuels fraud to keep long-term climate ambitions on track

Brussels must tackle biofuels fraud to keep long-term climate ambitions on track

With former Green Deal czar Frans Timmermans’ fresh return to Dutch domestic politics raising questions over whether enthusiasm and political will to push forward with the climate drive will falter, his replacement in Brussels, Maroš Šefčovič, the Slovakian Commissioner dubbed “the European Commission’s Mr. Fix It”— is already seeking to temper concerns. On 29 August, Slovakian Commissioner Maroš Šefčovič assured journalists that his Green Deal leadership would not see the Commission “dilute our ambition,” while pouring cold water on calls for tighter carbon neutrality deadlines.

While Šefčovič cites the decarbonisation challenges facing heavy industry as reason to avoid accelerated climate action, French economy minister Bruno Le Maire notably linked industrial innovation and carbon-cutting just days before, claiming that ambitious clean energy investments will make France the EU’s first green economy.

Paris is rightly targeting sectors including green hydrogen and batteries, but its investment plans should also incorporate sustainable biofuels – a crucial renewable alternative for hard-to-decarbonise transport industries whose EU imports face serious fraud challenges. Brussels will thus need to tackle this growing threat with the help of the private and NGO sectors while ramping up domestic biofuels production to keep its green transition on track.

Biofuels’ place in EU sustainability drive

According to the International Energy Agency (IEA), biofuels not only offer a vital and relatively inexpensive green alternative to fossil fuels for heavy trucks, ships and aircraft but also contribute significantly to energy security.

Yet complications arise over the distinction between sustainable, advanced biofuels – which the EU defines as being made from waste residue feedstocks, such as used cooked oil (UCO) – and conventional biofuels produced using food crops that compete with agricultural needs and can fuel deforestation. The European Commission has naturally prioritised sustainable biofuels in its recent climate policy, notably including an agreement to boost the blend of UCO-based biofuels within kerosene – creating ‘sustainable aviation fuel’ – to 70% by 2050, which would slash aviation emissions by two-thirds.

Brussels’s policy pivot towards green biofuels – accompanied by an incentive allowing member-states to double count advanced biofuels towards renewable energy targets – has triggered a sharp spike in UCO demand. And with EU production lagging behind, UCO feedstock imports have exploded, rising to a whopping 69% in 2019. Asia has led the charge, with heavily-subsidised Chinese and Indonesian producers flooding the EU market.

Green benefits undercut by fraud

Yet EU member-states and biofuel producers have increasingly raised alarm over suspicions that China and Indonesia are engaging in massive fraud. In August, the Commission launched an investigation into European Biodiesel Board (EBB) claims that Indonesia has been funnelling and fraudulently mislabelling the origin of its biofuels exports via China to avoid EU levies. But beyond market concerns, the biofuels industry, NGO sector and Germany are protesting that China is fraudulently passing off palm oil – restricted as a feedstock and banned from 2030 due to its role in fuelling deforestation in Indonesia – as UCO. 

The fact that Chinese imports of Indonesian and Malaysian palm oil biodiesel have skyrocketed by nearly tenfold in the past two years, as well as the unrealistically massive and rapid jump in Chinese manufacturing of ‘advanced’ biofuels strongly support Europe’s fraud allegations. 

This palm oil-filled trojan horse badly undermines the EU’s transport decarbonisation reporting while unwittingly fuelling deforestation abroad. Moreover, EU biofuel firms have cautioned that torrents of China’s fraudulent biofuels are driving down biodiesel prices in Europe, compromising the long-term viability of the bloc’s advanced biodiesel production.

EU solution needs cross-sector innovation

In recent years, the weak effectiveness of the Commission’s easily falsifiable system of private-run sustainability certification schemes has elicited heavy criticism from European industry, NGOs and even the EU Court of Auditors. While Brussels launched its Union Database for Biofuels (UDB) last January to bolster supply chain traceability, the platform has unfortunately been plagued by ongoing delays and operational problems, meaning that  the private sector must now step up.

Swiss firm SICPA, a leading global provider of hi-tech security inks and traceability solutions, recognised the fraud risks of sustainable biofuels early on. Drawing on its extensive experience helping governments tackle the illicit hydrocarbons trade with its molecular fuel marking technology, SICPA proposed an innovative authentication solution for sustainable aviation fuel, which involves combining nanotechnology liquid markers with blockchain technology to ensure supply chain integrity.

In a report on emerging traceability challenges published last March, SICPA highlighted the increasing use of blockchain in emerging solutions to counter renewable energy fraud, explaining that this technology renders digital databases virtually incorruptible, as “once data has been entered into a blockchain, it cannot, in principle, be modified without leaving a trace.” 

Bioledger, a UK-based software development firm established to tackle sustainable biofuels fraud, has also been at the forefront of exploring blockchain-centered solutions. Following the launch of its collaborative blockchain project with NGO network the Roundtable on Sustainable Biomaterials (RSB) in 2021, Bioledger has developed a cutting-edge supply chain traceability offer incorporating IoT, blockchain and cloud-based tools that allows biofuels producers to track the environmental impact and movements of their feedstocks. The tool could be integrated within the EU’s UDB platform, helping to significantly tighten Brussels’s anti-fraud regime.

Other half of the battle

While tackling fraudulent biofuel imports is essential, this is only half the battle – the EU’s overreliance on imports remains a fundamental enabler. Brussels and member-states will therefore need to use green industrial policy and investment mechanisms to significantly boost domestic biofuels production and protect the bloc’s clean energy transition.

Admittedly, reducing the flows of fraudulent imports will support Europe’s advanced biofuels production capabilities by pushing prices up and recovering duty revenues lost to tax circumvention – a practice which cost the EU an estimated €221 million in 2022 that could have been reinvested in the domestic industry. 

Nevertheless, hitting the Commission’s biofuels targets for heavy transport will require a much broader, more ambitious financing effort. The European Investment Bank (EIB) Group is increasingly viewed as a potential institutional leader, with its record-breaking €17 billion investment in clean energy projects last year a highly encouraging sign. 

But with its new Green Deal chief sending mixed signals, Brussels will need to ensure that Franz Timmermans’ departure does not embolden growing opposition to its decarbonisation agenda. Following the lead of its most ambitious member states, the EU must support accelerated green industrial innovation, as it simply cannot afford to fall behind in the race to net zero.

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