Biofuel is a key resource for a sustainable, decarbonised world, particularly as it allows for industrial sectors that cannot rely on battery power to use a less polluting alternative.
They have become particularly important in recent weeks as the price of crude oil nearly doubled in less than a month amidst conflicts in the Middle East, leading to many businesses and nations rethinking their reliance on fossil fuels.
Ensuring sustainable biofuel supplies requires not only safe storage systems with adequate relief valves to avoid issues during the production and distribution processes, but also the right type of feedstock acquired from sustainable sources.
This has been a concern in recent months, with the publication SourceMaterial reporting on a major case of biofuel fraud affecting a number of major sustainable energy companies in Europe, with implications across the supply chain.
What is biofuel fraud? How does it work? Why is it such a problem, and how can it potentially be stopped?
What Is Biofuel Fraud?
Biofuel fraud, or sustainability fraud more broadly, is passing off an unsustainable substance as a renewable fuel or fuel source, depending on the specific type of fraud.
Usually, it involves passing off a virgin biofuel feedstock as used, using dubiously acquired certification, something made possible through a complex and often obfuscated supply chain.
The two most common cases of biofuel fraud involve:
- Used Cooking Oil (UCO), where virgin cooking oils are described illegally as waste materials.
- Palm Oil Mill Effluent (POME), which is substituted with virgin palm oil.
Both UCO and POME are less consistently produced byproducts, and so to take advantage of markets for biofuel, substitutions and blends are made.
How Does Biofuel Fraud Work?
The biggest case involves the import of POME from Indonesia, the world’s largest producer of palm oil, to Europe, where it is used to produce sustainable aviation fuels (SAF) and hydrotreated vegetable oil (HVO), a form of biodiesel that can be used without being blended with fossil fuels.
According to the SourceMaterial report, 11 people in Indonesia have been detained on suspicion of bribing officials to provide illicit certification, which would allow them to claim palm oil is POME, avoiding the extensive regulations regarding the former.
Once it leaves Indonesia, with its certification, manufacturers use it in good faith without verifying if it is actually POME, either trusting the process or trusting their middlemen suppliers.
Palm oil is heavily restricted in the EU because of its connection to deforestation when produced in vast quantities, meaning that companies using palm oil and calling the resulting product a sustainable biofuel are breaking the law, whether intentionally or otherwise.
By 2025, it reached the point that statistics claimed that Indonesia was exporting ten times more POME than it could actually produce, leading to temporary suspensions of POME exports and widespread suspicion of any supplies.
Why Is Biofuel Fraud A Problem?
There are two major issues with biofuel fraud; one is a direct issue for the Indonesian government, but the other has much wider potential repercussions for the biofuel sector and energy policy more broadly.
Biofuel Fraud In Indonesia
In Indonesia, crude palm oil is taxed at a much higher rate, so passing off palm oil as POME is a form of tax evasion that fraudulently pays far less tax to the Indonesian government.
This is their main impetus to act, and what they will be charged under. However, the effects in Europe and the UK are far broader and difficult to calculate at present.
Direct Impact In EU
The direct impact is legal and reputational; whether knowingly or otherwise, biofuel companies that used palm oil thinking it was POME broke the law and undermined their green credentials.
None of the recipients, which include Italian energy company Eni and Finnish producer of sustainable aviation fuels Neste, is believed to have been aware of the fraud, but it will seriously harm their reputations regardless.
Effects On Energy Policy
What makes this worse is the effects this has had on energy policy, lending credence to green offset policies that are far less environmentally sound than they initially appeared.
With the Belem 4X initiative aiming to quadruple sustainable fuel use in a year, biofuels need to be produced at a significant scale, with SAFs and HVO fuels expected to make up a significant quantity of the biofuel produced and used.
With trust eroded as to whether the initial feedstock might have been contributing to deforestation, it has generated questions as to whether it is a feasible solution.
Similarly, the EU planned to outlaw the internal combustion engine for use in new cars, only for that proposal to be changed to allow for engines using biofuel, believing that the whole-life sustainability would offset the exhaust pollution.
With the fraud revealed, it will require greater scrutiny and examination of biofuels, especially as energy security becomes more vital in the wake of an oil crisis.
