Whilst some nations are much further ahead of the curve than others, the global rise in biofuel production and the need for adequate pressure-sensitive storage that emerges as a result is less than two decades old.
This means that there are implications when it comes to incentivising both production and use of biofuels, which has led to some incredible innovations in sustainable aviation and shipping fuels, but also some potential for misuse of the resources provided to boost industries.
The most recent of these was a major scandal and set of sanctions emanating from South Korea, which could lead to total fines for the seven companies involved of over half a billion pounds, according to The Chosun Daily.
What happened? What will happen next? And what can the world learn from this sanction judgement?
What Has Happened To The Biofuel Sector In South Korea?
The sanctions in question have been initiated by the Korea Fair Trade Commission (KFTC) against seven biodiesel manufacturing companies, but to understand why, it is important to explain South Korea’s biofuel regulatory system.
South Korea mandate the use of biofuel through two major sets of regulations:
- The Renewable Fuel Obligation (RFO) – This requires all diesel fuel to be blended with four per cent biodiesel.
- The Renewable Energy Supply Obligation (RPS) – This requires power generators to supply at least 15 per cent of their total energy generation using renewable sources, typically achieved through the use of bio-heavy oil.
In both cases, oil refiners must procure their biodiesel through an approved contractor via an impartial tender process.
The KFTC has found through an investigation that seven major companies operated a system of collusion to fix bids and agree on specific volumes to supply for at least 11 years since the beginning of the scheme.
This provides certainty within an inner circle of organisations but causes serious issues of fairness for other bidders who bought equipment ready to supply biofuel.
According to Seoul Economic Daily, the companies fixed the process by deciding winning bidders, ensuring other companies did not bid more competitively and covered the winning bid as decoys.
This has been described as volume fixing and bid-rigging, both serious crimes, and has proposed a range of penalties, including referrals for criminal prosecutions for current and former employees involved in the scheme, cease-and-desist orders and fines.
The latter has been particularly noteworthy as the total fines could potentially reach 1.9 trillion Korean Won.
Why Is The Biofuel Sector Being Fined 1.9 Trillion Won?
Due to the severity and longevity of the collusion, the KFTC have been keen to impose the maximum penalty possible on the seven companies involved, with a number stated in several reports in the South Korean media of 1.9 trillion won (£977m).
The statutory maximum fine is 20 per cent of sales relevant to the crime, and since the affected bids totalled 9.7 trillion won (£4.9bn), the total maximum fine would theoretically be the 1.9 trillion won figure.
However, depending on what the KFTC and the courts agree is the “affected sum”, it is possible that the bids from the “decoy” companies could be added to this total, which would take the fine to well over two trillion won (over £1bn).
This is in conjunction with a separate criminal investigation exploring the seven companies, who during the peak of the collusion, held 100 per cent of the bio heavy oil market and roughly 80 per cent of the biodiesel market in South Korea.
How Did This Affect The Biofuel Market?
The KFTC believes that the collusion could have affected petrol prices, as a fair tender bidding process would have reduced the cost of supplying biodiesel in line with market demand.
Similarly, because some power plants in South Korea were fuelled by bio heavy oil, it could have had a compounding effect on energy prices.
This may also affect the overall sanctions and penalties that are imposed.
What Can Be Learned From This Scandal?
Much like the biofuel fraud scandal in 2025, there is a lesson to be learned from a case of fraud halfway across the world.
It highlights the ever-vital importance of transparency in the biofuel sector, so customers are aware of what they are buying and suppliers make it clear what is being held in their vast fuel tanks.
As well as this, it shows the potential for perverse incentives in the sustainable fuels sector, one that future schemes will need to be mindful of in order to encourage greener fuel use whilst avoiding extra costs to taxpayers and customers.
