New biofuel data triggers fresh fraud concerns over EU imports

Data showing an apparent spike in European supplies of used cooking oil -- a key feedstock for biodiesel and sustainable aviation fuel -- has reignited concerns over widespread customs fraud allowing less-sustainable palm oil to be passed off as a waste-based source of biomass in Europe.

The ISCC, the largest feedstocks accreditor, issued 4.85 million mt worth of certificates for used cooking oil (UCO) feedstock globally in 2022, representing a 40% rise on the year, according to its latest data published by the European Commission Dec. 5.

Among the country breakdowns, a couple of numbers stood out with Italy recording a twelvefold increase to a total of 604,040 mt, second only to China, according to the data. Similarly, Malta -- which received no UCO accreditations from the ISCC in 2021 -- shot up to be the third-largest UCO source out of 107 accredited countries, certifying 520,000 mt of feedstock in 2022.

Together, Italy and Malta's combined 2022 volume represents over a third of global UCO supplies that were certified in 2021.

The European Commission currently relies on voluntary certification schemes such as the ISCC to accredit the origins of biofuel feedstocks, which determine eligibility for incentive programs and mandate fulfillment. Palm oil is a feedstock being phased out by the EU, however, due to its alleged contribution to deforestation abroad, and is not eligible for renewable energy incentives under the RED II initiative.

Industry skepticism

James Cogan, EU Government Affairs, Industry & Policy Director at biotechnology firm ClonBio Group, said that the increase could be indicative of a spike in fraudulent UCO claims.

"What instantly jumps out of the data is that a third of the used cooking oil is undoubtedly fake -- most likely sourced directly from virgin palm oil," he said, pointing also to "suspiciously high collection rates" in Saudi Arabia, Kuwait and Bulgaria.

"It’s completely impossible that the Maltese population were collecting three liters per day per person of used cooking oil last year," said Cogan, contrasting levels to approximately 5 liters per person collected annually in Belgium and the UK.

S&P Global analysts estimate aggregate European UCO collection capacity at around 1 million mt.

Barbara Smailagic, biofuels expert at lobby group T&E, pointed to the difficulty in verifying feedstocks’ origins.

"Europe is being flooded with dodgy used cooking oil," she said. "We need greater transparency and a limit on imports to avoid UCO simply becoming a backdoor for deforestation-driving palm oil."

The European Commission said that it is setting up a database to trace feedstock supply chains for renewable fuels consumed in the EU. "The database will increase transparency and ensure full traceability of the supply chains, thereby helping to prevent possible fraud causes," said an EU official.

The ISCC did not provide a comment when contacted by S&P Global.

EWABA, which represents European makers of waste-based and advanced biofuels, declined immediate comment on the latest ISCC data. The lobby group estimates that its members produced 2.26 million mt of biodiesel last year, almost two-thirds of which was made from used cooking oil feedstocks.

Traceability concerns

Tracing UCO origins is complicated by Europe’s import dependence on more opaque suppliers. According to T&E estimates, Europe currently imports 80% of its used cooking oil, with around 60% coming from China.

While the ISCC has conducted a series of audits with biofuels suppliers and revoked some certificates, it continues to issue new licenses, and several counterfeit UCO scandals have underlined the need to maintain scrutiny of flows.

Both Germany and Ireland have launched fraud investigations, while the European Commission recently launched an investigation into the routing of Indonesian biodiesel though China to avoid customs duties before shipping product to Europe.

Meanwhile, sector groups like VDB and EWABA have drawn attention to rising import dependence and called for the implementation of a European Database for Biofuels to boost transparency.

Any clampdown on UCO flows would have a significant impact on biofuel prices as demand continues to scale up.

Cogan said that an effective clampdown on UCO flows could cut at least 15-25% of supply from the European market, which has become reliant on cheap imports of HVO and UCO, and noted this would have a potential upside for European prices.

According to S&P Global analysts, global consumption of biofuel feedstocks increased by 100% between 2015 and 2022 while feedstock production increased by only 25%, leaving Europe particularly reliant on supplies from Asia and Latin America as biofuel mandates kick in.

Platts, part of S&P Global Commodity Insights, last assessed UCOME (RED) FOB ARA's premium to ICE low sulfur gasoil futures at $530/mt on Dec. 13, up 32% on the month.

Meanwhile, Chinese markets have come under pressure amid jitters around a compliance crackdown on UCO supply chains. FOB China UCOME was assessed at $1,005/mt Dec. 14, down from $1,040/mt the previous week.