The potential for large scale fraud in Europe’s renewable fuels sector arises from the Renewable Energy Directive being designed in such a way as to give a market value to certain waste-based biofuels feedstocks – such as used cooking oil – of up to double the value of the least cost virgin vegetable oil alternatives – such as palm oil. This creates profit opportunity for unscrupulous operators. At the same time the Directive does not impose requirements to physically check or inspect supply chains for authenticity and traceability. Thirdly, there is no EU body charged with detecting or investigating irregular trends or practices. Fraud is, literally, unchecked.
With demand for used cooking oil (UCO) rising 45% annually in the EU, its consumption in the biofuels sector has grown 1000% in the six years to 2020, to reach over 4 million tonnes. World UCO capacity is limited and requires significant investment in collection infrastructure to increase supply, whereas palm oil is cheap, abundant and can be readily procured in ever larger quantities. Palm oil imports disguised as UCO are not checked whilst the fraud is highly profitable.
The problem is well known, and it’s getting worse. Palm oil disguised as UCO can easily originate in recently deforested areas, causing a negative environmental and climatic impact. Imported deforestation is a hot political issue in the EU, and the European Parliament has taken the European Commission to act to tackle the problem. No loopholes should be left open, such as the current unchecked UCO imports.
In 2018 the EU Renewable Energy Directive RED2 was signed into law and it mandated that a “Union database be put in place to ensure transparency and traceability of renewable fuels”.
This measure was included in order to address the large scale fraud risk that exists under the Directive, as described by the European Court of Auditors in its 2016 Special Report on the matter.
The objective of the Union database is to improve transparency over the supply chains, which involve 27 member states, 14 certification schemes and several thousand collectors, traders, processors and buyers across 170 countries. The database should allow stakeholders detect suspicious trends and imbalances. For instance it would allow stakeholders check for coherence between the amounts of UCO biodiesel placed on the EU market and the amounts of UCO feedstock collected at source. Any suspicious swelling of volumes along the supply chain could be detected and investigated. Similarly, it would allow regulators examine whether the amounts declared as originating from a given country were plausible, in relation to that country’s ability to generate, certify and export such volumes. This is especially important, for instance, in cases where a country has limited UCO collection capacity, easy access to palm oil and no national regulation preventing the substitution of UCO with palm oil.
However the database has not been implemented as of April 2021, and there are few indications of real progress being made. In fact, over two years since the legislation was passed, it has not yet been designed and there are no visible indications of material progress being made.
The current work at the European Commission to build the database does not impress by the amount and expertise of the resources engaged in the project. There is no evidence of a governance structure being in place for the project, to oversee progress, manage risk and report on it to the legislators and stakeholders who mandated it, and who depend on it for the correct functioning of the legislation.
Farm Europe calls on the European Commission, in particular on DG ENER, to give this project a higher commitment and priority. Fraud should never be allowed to go unchecked, and the reputation of the Commission is at stake.