Biofuels: when 'used' is more valuable than 'new'

Biodiesel made from used cooking oil is worth more in the market than that produced from virgin palm oil due to the structure of the European incentive scheme for sustainable biofuels. There is therefore money to be made by illegally labelling one as the other.  The recent biofuels fraud in the Netherlands is a high profile example that has prompted urgent action. A European database for tracking biofuels through the supply chain, mandated in the latest Renewable Energy Directive has suddenly become urgent. A new European Commission employee will be fast tracking the project. 

This problem is of wider relevance as sustainably produced commodities often command a premium in the market compared with their conventional counterparts. Material has been incorrectly labelled as sustainably certified, which has led to a loss of confidence in the sustainability scheme itself and its certification bodies. The auditors who look at purchases and sales volumes have been unable to spot when the volumes do not match up. 

Sustainability schemes have proposed solutions based on a centrally administered software platform onto which volumes of certified raw materials, authorised by auditors, are placed, at the start of the supply chain. All transaction volumes are then registered as transfers on the platform so volumes of sustainably certified material can be traced between Scheme members.  But most of these initiatives have remained voluntary, as members have been unhappy about the extra work, not to mention the risk of putting transactions on a third party system.  RSPO (Roundtable on Sustainable Palm Oil) is a notable exception; it has been able to insist that members use Palm Trace.  

But new technology should be harnessed to reduce the auditing burden and strengthen assurance. Blockchain is being taken up by the banking industry to strengthen security and reduce the costs of financial services. Transactions are transparent and digital information can be transferred down a supply chain where all members opt in. Other sectors from metals to food are testing out blockchain, convinced by its advantages. The software could also be integrated with companies’ existing business systems so that sales and purchases only have to be entered once. Auditors would still be key to verifying volumes of sustainable material entering the system at the ‘point of origin’ i.e. start of the supply chain. 

Perhaps biofuels fraud will be a catalyst to advance supply chain tracking of commodities. The solution chosen by the European Commission for the new database will have wider relevance. We are moving to an economy where used, recycled and waste materials are in demand. Let’s harness technology to ensure that one man’s trash doesn't become another man’s treasure, in a way that was not intended.   

Published: 16 October 19

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