Germany’s €4.5 billion carbon offset fraud
Germany’s €4.5 billion carbon offset fraud
“The system has proven to be opaque and has proven to be prone to errors.”
In 2018, the German government launched a carbon offsetting programme in China. The legislature came into effect in 2020, and allows oil companies to meet legal climate emission targets in the transport sector through “upstream emission reduction projects” (UER), otherwise known as carbon offsetting projects. When drivers fill their cars with petrol, they are also paying for carbon offsetting projects in China. The programme has resulted in large-scale fraud.
Information from whistleblowers and research by the German media based on analysis of satellite images reveals that several UER projects are fake. Some have designated existing facilities as new projects. Other projects simply do not exist.
Most of these projects reduce emissions from the extraction of fossil fuels, for example flaring of gas, energy efficiency, or using renewable energy in the production of crude oil.
The German Federal Environment Agency first heard allegations of irregularities in several UER project in August 2023.
On 1 May 2024, ZDF reported that a Chinese oil and gas technology company had written to the Federal Environment Agency. The company was supposedly running five UER projects. In its letter to the Agency, the Chinese company wrote,
We were never directly involved in the development of German UER projects. We suspect that there is a high probability that documents were forged and we urgently request that your authority investigate this.
The Federal Environment Agency began investigations in September 2023. Nine months later, in May 2024, the Federal Environment Agency filed a criminal complaint but has not released any details.
The UER carbon offsetting programme will end at the end of 2024 — two years earlier than planned under Germany’s Federal Emissions Control Act. This change came into force on 8 June 2024.
In total, there are 60 UER projects. Since investigations started in September 2023, just two projects have been cancelled. Two more projects, that were still in the application phase, have been stopped. The Federal Environment Agency considers a further 36 projects to be suspect, according to Dirk Messner, head of the Federal Environment Agency.
In ten projects, there are serious doubts about whether the projects exist at all. In ten other projects, the information about the projects was probably incorrect.
The Federal Environment Agency will now examine each individual project and has submitted a request for an on-site investigative mission with the Chinese authorities. “The Chinese authorities are aware of the political sensitivity of the cases,” Messner states.
A €4.5 billion fraud
According to the CDU/CSU, Germany’s centre-right political party, the fraud may have cost as much as €4.5 billion.
Anja Weisgerber, environmental policy spokesperson for the CDU/CSU describes the alleged fraud as “one of the biggest environmental scandals of recent years.” Weisgerber is calling for an immediate moratorium on the relevant UER projects.
Die Welt reports on a seven-page report from the Environment Ministry that acknowledges the failure to check on the UER projects.
The system has proven to be opaque and has proven to be prone to errors, among other things because it is hardly controllable by German authorities.
The report was prepared for the Parliamentary Committee on Environment, Nature Conservation, Nuclear Safety and Consumer Protection.
On 22 December 2023, Handelsblatt reported a biofuel industry insider as saying that, “In 27 UER projects in China, we have received indications of massive irregularities and even clear fraud.”
Satellite images show nothing more than desert sand where 13 UER projects are supposed to be, Handelsblatt reported, along with indications that projects were being double counted.
Handelsblatt also quotes Zoltan Elek, managing director of Landwärme, a German biomethane company, as raising questions about the additionality of Chinese UER projects.
The German Emissions Trading Authority did not respond to questions from Handelsblatt’s journalist, saying it was still in the process of clarifying the facts.
“Indications that irregularities have occurred”
On 2 January 2024, Nikkei Asia reported that the German Emissions Trading Authority was investigating an upstream emission reduction project in China. A spokesperson from the Authority told Nikkei Asia on 23 December 2023, that,
“We have indications that irregularities have occurred in a UER-directive project in China. A project may have received approval that does not meet the approval criteria.
“If [the project’s veracity] cannot be proven . . . it will result in a stop to the issuance of further UER certificates and a deletion of the UER certificates that have already been issued. If there are indications of criminally relevant behavior, the public prosecutor’s office will be informed.”
Many large fossil fuel corporations rely on UER projects in China to meet their emissions targets.
German biofuel manufacturers are opposed to the UER carbon offsetting scheme, because they argue that fossil fuel companies can save money by buying UER certificates instead of buying biofuel.
Fake UER certificates just makes things worse for the biofuel industry. Elmar Baumann, CEO of the German Biofuel Association told Nikkei Asia that,
“We fear that vague specifications and lax controls will result in a lot of money being made without actually achieving the stated emissions reduction.”
The auditing firms: Müller-BBM Cert and Verico
ZDF analysed satellite images that show that at some of the locations, the projects had already been in place for a long time and should therefore not be permitted as UER projects.
One project, identified as BZIA, was built in September 2020, according to project documents. But a satellite image revealed that it was already completed in March 2019.
Axel Michaelowa of the University of Zürich has worked on carbon markets for 30 years. He commented that,
“This means that the project should never have been validated. It is not additional, it should not have issued a single emission credit.”
The BZIA project was audited by two German companies: Müller-BBM Cert Umweltgutachter GmbH; and Verico SCE.
ZDF’s journalist Miriam Steimer visited a project near Peking, called HYOA. The project had also been audited several times by the two German auditing firms.
What she found was an abandoned poultry farm. ZDF calculated that the project raised €80 million — paid for by German consumers when they buy petrol.
Shell is the sponsor of the HYOA project. When ZDF asked Shell about the project, the company explained that the project was completed in 2021. Shell said that the project had been “validated by an accredited, independent auditing firm, and subsequently verified by another independent auditing firm”.
Steimer also travelled to another German climate project, FUUR, in Xinjiang province. The project was supposed to have been built in 2020. But an information board in front of the plant shows that it has been operating since August 2014. ZDF estimates that the project cost German consumers €67 million.
The auditing company Müller-BBM Cert visited the project three times. Müller-BBM Cert has audited 38 climate projects in China. ZDF asked the company some questions by email, but the company said it could not respond because of confidentiality agreements.
Müller-BBM Cert commented that,
However, we decisively reject the allegation of fraudulent activities by Müller-BBM Cert Umweltgutachter GmbH.
Another project, NNZF, was supposedly built in 2021. The German auditing company Verico SCE has confirmed this date. Yet the information board at the entrance to the plant states that, “The officially began operations and production in December 2015.”
The plant was therefore already completed several years before the construction date given in the project documents.
ZDF visited Verico’s offices in Bavaria. The company has audited 41 climate projects in China. Its market value is more than €1 billion. Verico declined to give an interview to ZDF. The company stated that “there is no reliable evidence of data manipulation of falsified information”.
An industry insider told ZDF that,
“There is a monopoly. About 70% of the Chinese projects come from one source. On the other side, two auditing firms, Müller-BBM Cert and Verico SCE, alternately do the validation and verification for almost all of these projects. The chemistry is right, you know?”
A statement from the German parliament’s press office explains that,
The evidence suggests that we are dealing with a fraud system. The independent certifiers and validators on site obviously play a crucial role in this: Because the Federal Environment Agency decides on the recognition of projects on the basis of their documents, it is dependent on them being reputable. The investigations have now confirmed the suspicions against two employees of two validation companies who were involved in a total of 40 critical projects.
Great research, thanks! Of course, ALL offset credits are a fraud, as evidenced by no reductions in CO2 level. Offset frauds in China go back many years.