When it comes to biodiesel, the EU has been getting ripped off by China for some time now. But since the beginning of 2023, the cases of fraud have reached a scale that has had a massive impact on the German biodiesel market in particular and therefore on the price of rapeseed - and indirectly on grain as well. The floodgates have been opened to fraud, and neither the German government nor the EU Commission seem to have any interest in stopping it.
In order to understand how the fraud works, one must first consider the very complex fundamentals of the biofuel market. The RED II Directive (all abbreviations are explained in the box) stipulates that all EU countries must increase the share of biofuels and reduce greenhouse gas (GHG) emissions from transport. The directive envisages an 8% reduction by 2023. How the countries achieve this is up to them.
If you want to describe the market for biofuels, you can't avoid technical terms and, above all, abbreviations. These are the most important ones:
- RED II. RED stands for "Renewable Energy Directive". RED II is the current version, which has been implemented by every EU country, although in different ways. In contrast to an EU regulation (which applies directly in every country), this is the case with a directive.
- HVO. "Hydrogenated Vegetable Oils" - In this process, vegetable oils are chemically converted into diesel. As this is not a simple transesterification process like biodiesel, the starting product cannot be recognised analytically.
- UCO. "Used Cocking Oil" - This is the residue from deep-frying fat or other kitchen fats.
- POME. "Palm Oil Millers Effluent" - This is palm oil that is filtered out of the waste water from oil mills. Chemically, POME is nothing else than palm oil.
- RIN. "Renewable Identification Number" - This is the biofuel certificate in the USA.
- GHG reduction quota. - The greenhouse gas reduction quota determines how much greenhouse gases in the fuel must be reduced by renewable energy sources (such as biodiesel). This is currently 8 %.
A distinction is made between conventional raw material sources (such as rapeseed oil) and advanced sources such as bioethanol from wood waste, which is mainly produced by the Finns, who have many timber mills. In addition to conventional raw materials and advanced raw material sources, there is also the category of used cooking oils (UCO). These have a higher GHG reduction value than biodiesel because the raw material is already available, no additional energy is required for production in the field and no emissions such as nitrous oxide are produced. And there are also country-specific GHG reduction values for biodiesel from rapeseed. There is a base value that applies to rapeseed imports from Ukraine, for example, as well as country and region-specific values. Rapeseed biodiesel from French rapeseed, for example, has a higher GHG saving than German rapeseed because the French take into account the CO2 binding in the soil and therefore achieve lower emissions during cultivation.
Advanced biofuels, which in Germany primarily include hydrogenated vegetable oil (HVO), are double-counted beyond a sub-quota (currently 0.3% of total energy consumption in the fuel market). This means that the mineral oil company as the distributor must blend less than half the amount of HVO into mineral diesel compared to rapeseed biodiesel in order to fulfil the requirements.
So the more HVO Shell, BP and others add to biodiesel, the less biogenic fuel they need in the end. Even better: they don't even have to blend in the biofuel labelled on the certificate. For example, HVO can be blended with diesel in Spain, but the certificate can be credited in Germany. There is free certificate trading within the EU and only the quantity stated on the certificate has to be included, which can then also be rapeseed biodiesel.
The consequence is obvious: irrespective of the actual blending, the certificates are registered where they bring the greatest benefit to the mineral oil companies. And due to the double counting of HVO or other advanced fuels, this is primarily Germany.
The certificates can also be postponed to the next year. As a result, far more HVO came to Germany in 2023 than is needed for the GHG quota, meaning that Germany will already have a stockpile in 2024. Other EU countries (such as France) do not practise double counting. There, HVO is worth no more than rapeseed biodiesel. The consequence: imports from China (or at least their certificates) are almost exclusively channelled to Germany.
Because palm oil as a raw material for biodiesel can no longer be counted towards the German GHG quota since January 2023, Indonesian and Malaysian oil mills are naturally interested in "cheating" their palm oil into biodiesel for Europeans in other ways. The route is via China, which has never had any problems with the re-declaration of goods. Palm oil or HVO from palm oil goes to China, where it is either hydrogenated (palm oil) or simply re-exported as HVO from used cooking oils or as oil mill waste water (POME).
3 million tonnes of HVO, biodiesel and used cooking oil come from China. This means that palm oil can not only be used in EU biodiesel, it is also worth twice as much as rapeseed biodiesel. China exports 200,000 tonnes of HVO, 800,000 tonnes of UCO and 2 million tonnes of UCO biodiesel to the EU as a whole. The buyers are BP, Shell and other oil companies, which not only fulfil their GHG quota obligations cheaply, but also have to add less physically and can use more low-cost mineral diesel.
If more HVO allegedly comes from China from palm oil mill wastewater than is actually produced in the countries where it is grown, Indonesia and Malaysia, then this smells of fraud. And if enormous quantities of advanced biodiesel from UCO are suddenly coming from China shortly after Germany recognised this raw material as advanced, and at extremely low prices, then this also smells of fraud. No matter how you look at the market for HVO: China is involved and the origin is untraceable.
Of course, UCO and HVO from China are certified. But here too, it is worth taking a look behind the scenes. There is only one certifier in the EU that is authorised for HVO in China, the ISCC in Cologne, i.e. a German company. However, the audits in China are carried out by Chinese people. Inspection by a European supervisory authority such as the Federal Office for Agriculture and Food (BLE) in Germany is not permitted. If one also knows that ships from Indonesia first call at Chinese harbours and then set sail for Europe after a short stay (this can be easily tracked via satellites and is also available to everyone on the internet), one can guess that not everything is being done properly. This applies not only to HVO from advanced sources, but also to used cooking oil from China. Why not collect this from canteens, add palm oil and sell palm fat-enriched UCO (or HVO made from it) to Europe in this way?
Germany also receives HVO from the USA - and in return ships biodiesel from rapeseed back there. In 2023 this was 350,000 tonnes. The US certificates are considered to be correct. But it is still worthwhile, because the USA only recognises RINs (these are the US GHG certificates) and does not have double counting. The USA doesn't care about the raw material, but it's worth more to us on paper.
The business could become even more attractive for mineral oil companies, as the draft for the new Federal Immission Control Ordinance (BImSch) stipulates that oil refineries will also be able to incorporate biogenic raw materials into the refining process in future. Put simply: crude oil + rapeseed oil equals finished diesel. An admixture is then no longer necessary. However, rapeseed oil is not permitted, only raw materials from "advanced" sources, i.e. waste materials. This gives the Chinese further access to the German biodiesel market, which is almost impossible to control.
The Association of the German Biofuels Industry proposes abolishing double counting for biofuels from countries that do not allow controls by German or European authorities. This would certainly not be able to prevent all fraud, but it would be a hurdle for the time being. Or you could follow Austria's approach. It requires accreditation from every plant from which biofuels are supplied to Austria.
In the end, it's a matter of political will.
The Federal Office for Agriculture and Food (BLE), as the inspection authority in Germany, does not see itself as responsible for inspections abroad. The Federal Government does not want to act and refers to the responsibility of the EU. Brussels relies on the certifiers and refuses to take action as long as there is no evidence of fraud. But there can be no such evidence as long as nobody is allowed to travel to China. And that would complete the circle. It seems that the political leaders in Brussels and Berlin do not want to mess with China on this point.
Around 9 million tonnes of rapeseed oil are produced in the EU. Around 6 million tonnes of this has so far gone into biodiesel. If 3 million tonnes of this is physically replaced by dubious imports from China, which correspond to 3.4 million tonnes as a certificate due to double counting, then there will be no sales for this quantity of rapeseed oil. This will have to be marketed as edible oil and will encounter a market in Europe that is oversaturated with sunflower oil. The only remaining option is export (to Mexico, for example). This reduces the oil mills' margins and therefore the rapeseed price. So far, there has been relief from Argentina, which is allowed to supply 1.2 million tonnes of soya diesel to the EU duty-free. However, due to the poor Argentinian soya harvest, practically none of this was delivered. This winter will see a normal harvest in Argentina, which means that the 1.2 million tonnes will come.
The rapeseed market will remain under pressure as long as uncontrolled imports from China are tolerated. Indirectly, this also has an impact on the wheat market, because since it is an overall GHG quota for all fuels, the more biodiesel is blended with diesel, the less ethanol is needed in petrol. Perhaps the pressure will ease somewhat with lower prices for certificates. But the surpluses that will be carried over after 2024 do not give rise to any hope of rapid improvement. Rapeseed thus remains caught between Chinese fraud, Ukrainian sunflower oil and closed eyes in Berlin.