Biodiesel: The scam with hydrogenated vegetable oils

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.

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.

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.

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.