Biofuels are a vital bridge in the energy transition, offering a lower-carbon alternative to fossil fuels for sectors like transport, heating, and even chemicals. But a growing cloud of fraud is threatening to undermine their credibility—and their climate benefits.
In recent years, biofuels fraud has escalated from isolated incidents to a system-level concern involving falsified sustainability claims, fake production facilities, and spotty enforcement. Despite efforts to clean up the market, loopholes persist.
So, what’s really going on—and can it be stopped?
According to analyst reports from Prima CarbonZero, Germany has become ground zero for Europe’s biofuels fraud crisis. Allegations of fraud involving hydrotreated vegetable oil (HVO) and biodiesel imports have exposed vulnerabilities in the current system of sustainability certification and tracking.
In a particularly egregious case, a certification body under the ISCC voluntary scheme issued sustainability documents for a non-existent HVO plant allegedly located in the heart of Hong Kong’s commercial district. The German Federal Office for Agriculture and Food (BLE) later discovered that the company behind the plant did not exist—and neither did the facility in Malta it also claimed as its production site.
Investigations revealed layered shell companies across Hong Kong, the UAE, and the Netherlands. Fraudulent HVO is likely being substituted with traditional fossil gasoil.
Yet despite the scandal, much of the paper trail—known as Proof of Sustainability (PoS)—remains in circulation. It is protected by Germany’s “confidence principle” which shields buyers unless intentional fraud can be definitively proven.
Analysts estimate the fraud may involve tens of thousands of tons of HVO over just 15 months. Market participants have expressed concern that these fraudulent volumes have been counted against Germany’s greenhouse gas (GHG) reduction targets. This could allow polluters to claim credits without actually delivering environmental benefits.
The implications are serious:
This isn’t just a German issue. Cross-border supply chains and the global nature of voluntary certification mean the entire European market is exposed.
The European Commission (EC) is grappling with how to restore integrity to the system. Two policy levers are currently under consideration:
However, critics argue that both measures may not offer enough to stop the momentum. In the case of the Chinese biodiesel under investigation, the volumes in question are already likely sold, used, and unverifiable.
Major biofuel players like Verbio—Europe’s largest biodiesel producer—have issued strong calls for reform. The company supports the German government’s plan to raise domestic GHG quotas as part of RED III implementation. However, this must be accompanied by immediate, large-scale fraud prevention measures.
Germany’s new coalition government seems to agree. It has committed to expanding GHG quota targets and protecting domestic producers by strengthening fraud detection and enforcement.
Industry groups are pushing for a 40% GHG reduction quota by 2030. They argue that without robust compliance mechanisms, climate ambition will be impossible to achieve.
Voluntary certification schemes like ISCC are facing increasing scrutiny. While they play a central role in verifying sustainability claims, recent events have shown that certification bodies can fail dramatically in their oversight.
ISCC has, for the first time, issued a “red card” suspension to Certi W Baltic, the certifier responsible for the Hong Kong fraud. The body is now banned from certifying new clients until 2026.
But this reactive approach has limitations. Market participants and regulators are calling for deeper reforms to the certification ecosystem itself. This would potentially include greater public oversight or EU-wide standardization.
Meanwhile, vulnerabilities continue elsewhere. The used cooking oil (UCO) trade—especially involving China and Malaysia—has faced allegations of origin fraud. Products are shipped through lower-tariff countries to potentially mask their true source.
Malaysia has now centralized certification issuance under its Ministry of Investment, Trade and Industry (MITI) in an attempt to prevent transshipment and improve transparency. Despite these efforts, enforcement remains patchy. Without stronger cross-border cooperation and real-time data sharing, fraudsters will likely continue exploiting jurisdictional blind spots.
Solving biofuels fraud won’t be easy, but a few actions stand out:
Biofuels have already delivered massive climate benefits—accounting for as much as 90% of GHG reductions in Germany’s transport sector since the phase-out of UERs. But their potential can only be fulfilled if trust in the system is restored.
Fraud in the biofuels market isn’t a distant risk. It’s happening right now, and it's harming both climate goals and credible market actors. While recent steps by the EU and national governments show that the issue is being taken seriously, progress must shift from reactive clean-up to proactive prevention.
If integrity can be rebuilt, biofuels still have a strong future. But it will take transparency, regulation, and industry accountability to get there.