Letter from Europe: Amazing Opp to get UCO right
By James Cogan
EU Government Affairs, Industry & Policy Director, ClonBio
Special to The Digest
In an amazing turn of events, on August 16 the European Commission launched an investigation[1] into possible large scale violations in the used cooking oil, palm oil and biodiesel supply chains from South East Asia to Europe. The amounts are considerable – as much as a million tonnes of product or a billion euros in 2022 alone.
Since the European Union Court of Auditors 2016 report[2] on the EU biofuels certification schemes it has been irrefutable that the system was weak and gamable.
The report found, among many other issues, that the certification schemes did not have appropriate verification procedures to ensure that the origin of biofuels produced from waste was indeed waste, that they were insufficiently transparent, that the Commission does not supervise the functioning of recognised schemes and that is has no means to detect alleged infringements.
The EU does not require inspection of trade data to spot suspicious trades or trends, they don’t publish aggregate data allowing other people inspect it, and there are no requirements for audits or spot checks of physical infrastructure or materials.
Growing demand for used cooking oil (UCO) biofuel under the EU Renewable Energy Directive, virtually unlimited availability of low cost virgin palm and other oils, and a weak certification process add up to a major opportunity for unscrupulous operators.
In March 2022 the EU Ombudsman made a finding of maladministration[3] against the European Commission for its failure to provide public access to documents concerning EU imports of used cooking oil despite there being a clear public interest in transparency around the issue.
The little data and information that is available points to widescale gaming of the system. For instance, a 2022 report[4] by the International Council for Clean Transportation brought to light that the volumes of EU certified UCO originating in Malaysia for placement on just two European markets – the UK and Ireland – amounted to over twice the volumes of UCO that Malaysia could plausibly collect.
Nevertheless, EU Member States dialed up their consumption of imported UCO, the EU Commission kept its head down and traders enjoyed the results.
In addition to being inherently flimsy, the EU voluntary schemes provide a shield of immunity from liability when violations are uncovered. Contrast that to the Renewable Fuels Standards[5] in the USA which treat violations that occur as being caused by all parties that produced, distributed, or carried the fuel, regardless of the paperwork. Parties concerned about violations in their supply chain need to take affirmative defense provisions if they are to avoid liability.
Things changed in the EU over the last 12 months when volumes of product from China more than doubled, at prices which put some EU producers out of business. European trade associations EBB and EWABA began petitioning national governments and the Commission in Brussels to intervene.
While the EU has essentially no mechanisms for investigating environmental and certification fraud – such as subsitition of UCO with virgin palm oil or misdeclaration of countries of origin – its anti-fraud unit OLAF has powers and resources to investigate fraud which results in loss of tax revenue to the Union.
In 2019 duties of up to 18% were put on Indonesian biodiesel coming to the EU in response to Indonesian government support for biodiesel production, by way of the national Oil Palm Plantation Fund. Changed patterns of trade between Indonesia, China, the UK and the EU after 2019 point to a possible circumvention of these import duties. The European trade body EBB estimates possible losses[6] of duty revenue to the EU at over €220 million in 2022 alone, pointing to volumes of over a million tonnes of biodiesel.
EBB requested an investigation by the EU Commission and on August 16 the investigation commenced.
The case illustrates the extent to which the European Commission’s certification schemes are no match for fraud involving misdeclaration of the origins or types of biofuel material being supplied, whether for circumvention of duties or simply for profiting by substitution of UCO with palm oil and disguising the countries of origin.
The Commission has had access to supply chain data all along and could have been the first to raise the alarm. Likewise the certification scheme operators. The investigation should examine their roles.
Strictly the investigation is about tax and tariff fraud because that is what OLAF has powers to act on. But it will shine a light on the much larger problem. Al Capone was convicted for tax evasion.
Interested parties have fifteen days to make submissions to the Commission team, while the Commission itself is obliged to have completed its work within nine months.
[1] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32023R1637
[2] https://www.eca.europa.eu/Lists/ECADocuments/SR16_18/SR_BIOFUELS_EN.pdf
[4] https://www.euractiv.com/section/agrifuels/news/discrepancy-in-british-and-irish-used-cooking-oil-imports-raises-biofuel-fraud-concerns/
[5] https://www.govinfo.gov/content/pkg/FR-2023-07-12/pdf/2023-13462.pdf
[6] https://ebb-eu.org/wp-content/uploads/2023/08/EBB_PR_Anti-circumvention-case_17.08.2023_FINAL.pdf
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