(Bloomberg) — A tropical island off southern China, best known for its sandy beaches and luxury hotels, has become the unlikely focus of Europe’s concerns over a booming waste-oil industry.
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On the edge of the South China Sea, Hainan has become a green-fuel hot spot over the past year, accounting for nearly a third of the country’s biodiesel exports. The catch is that China’s answer to Hawaii has no capacity to convert used cooking oil, the most obviously compliant feedstock, into biodiesel.
According to producers, traders and analysts who held conversations on the sidelines of a conference in Singapore last week, it suggests the island may instead be serving as a transshipment hub, facilitating efforts to mix fuels with cheaper feedstock, then mislabeling the product in order to qualify for European green incentives.
Speaking on condition of anonymity as their conversations are private, many fretted about the consequences of potentially fraudulent biodiesel exports to Europe, including greater scrutiny and quality inspections. They expressed concern that punitive tariffs could be imposed on Chinese products should there be findings of dumping or fraud, which would hurt the entire industry.
Chinese and European producers worried they were being undercut by non-compliant cargoes.
Asia Floods Europe with Green Fuel Suspected to Be Fraudulent
And at the center of their disquiet is Hainan.
Hainan-registered companies exported 498,000 tons of biodiesel over the whole of last year, making up 28% of China’s total outbound shipment, according to customs data compiled by Bloomberg. Its share of exports climbed to 31% in the first quarter this year, with volumes at 205,000 tons. Almost all the cargoes were bound for the Netherlands, a large consumer market and home to major European ports.
Europe is an increasingly attractive market for biofuels because of incentives offered for fuels made from waste products, intended to foster sustainability and which mean higher prices than for those made directly from crops.
The problem is that it’s hard to check what’s blended into biodiesel.
The spike in exports from China to Europe comes at the same time as a surge in Chinese imports of palm waste and palm-based biofuel from Indonesia and Malaysia. Palm oil is generally shunned by the European Union due to deforestation fears, and the bloc is phasing out its use for biodiesel feedstock.
Chinese customs data show Hainan-registered firms handled more than 60% of the country’s biodiesel imports in the first three months. Most of the volumes came from Indonesia and Malaysia, the biggest palm oil suppliers globally.
China’s biodiesel production reached 2.4 billion liters last year, up by a third from 2021 due to a surge in export demand, the US Department of Agriculture estimates. Facilities are located mainly in Shandong, Guangdong, Shaanxi, and Jiangsu. Nearly all are export-oriented to take advantage of EU tax policies.
A domestic market for biodiesel remains elusive. Efforts by some provinces including Hainan to break into the road fuel market have been largely unsuccessful, leaving Shanghai the only local authority committed to supporting a biodiesel program.
Calls to the department of commerce of the Hainan provincial government went unanswered.
The International Sustainability & Carbon Certification — which provides certification for materials and fuels, including what’s needed to comply with EU rules — said in April it’s implementing measures including unannounced integrity audits at processing units in China and Singapore and expanded auditor capacity in Asia.
(Adds background on Chinese biodiesel market in third paragraph from bottom)
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