Germany’s ongoing €4.5 billion carbon offset fraud: “It is possible that we are dealing with a case of serious environmental crime here”

German authorities’ action is “too little, too late” says whistleblower.

PHOTO Credit: ZDF.

In June 2024, REDD-Monitor wrote about a carbon offsetting scandal in Germany. Under a 2020 law, oil companies were allowed to meet emission targets in the transport sector through “upstream emission reduction projects” (UER). When German car drivers fill their cars with petrol, they are also paying for carbon offsetting projects mostly in China.

The scheme led to large-scale fraud. An investigation by ZDF revealed that some projects had been in place for a long time and therefore should not qualify as UER projects. Other projects simply did not exist. One project, that had raised an estimated €80 million from German car drivers, turned out to be an abandoned poultry farm.

The CDU/CSU, Germany’s centre-right political party, estimated that the fraud could cost as much as €4.5 billion.

In July 2024, the German Parliaments Environmental Committee questioned Steffi Lemke, the Environment Minister, about the allegations of fraud. Lemke acknowledged that, “It is possible that we are dealing with a case of serious environmental crime here.”

ZDF reports that the Federal Environment Agency, which is under the supervision of the Environment Minister, is “currently examining 40 projects out of a total of 69 that have been approved in China”. In total, there are 75 UER projects worldwide, with the remainder in Nigeria and Azerbaijan.

A senior government official who was responsible for approving the UER projects has been suspended, ZDF reports. The Environment Agency has filed a criminal complaint with the Berlin public prosecutor’s office. And the police have searched the offices of three German auditing firms that verified the projects in China.

The whistleblower

In January 2024, oil giant Shell received a message on its online whistleblower portal. The message exposed the abandoned chicken farm that was supposedly an offsetting project, and at least three other problematic projects.

The complaint, which was shared with Semafor, states, “I hope you will fulfill your due diligence and investigate the allegations.”

The whistleblower, Semafor reports, was Zoltan Elek, the CEO of a company called Landwärme that supplies biomethane to Shell and other companies. Landwärme is now bankrupt. The company told Semafor that it was the victim of the carbon offset fraud. Oil companies bought the fake carbon offsets because that was cheaper than buying biofuels from companies like Landwärme.

“How does fraud like this, at such a scale, happen?” Elek asks in an interview with Semafor. “This is not small scale, someone selling you a bad used car.”

Elek told Semafor that the government action is too little, too late. He says that Shell has not done enough to investigate the scandal. He argues that Shell should dismiss or discipline staff, and make payments to companies like his that have lost money because of the fraud.

Shell did not answer Semafor’s specific questions.

A Shell spokeswoman told Semafor that, “the Federal Environment Agency is currently investigating the allegations mentioned,” and that Shell “always acts in accordance with the relevant laws and regulations.” She added that Shell “conducts its own due diligence on a voluntary basis,” but didn’t provide details.

The projects were “checked by the authorities in several steps”, the spokeswoman told Semafor.

The biofuel industry in Germany has set up an Initiative against Climate Fraud, which is demanding a dialogue with the Ministry for the Environment. In addition the biofuel industry wants a review and halt to all UER projects, compensation from companies for the emission reductions not achieved, and a tightening of UER certification criteria.

The biofuel industry estimates that the fraud caused €7.9 billion in economic damage.

“Good news.” Germany rejects 215,000 carbon credits

On 6 September 2024, Germany’s Environment Agency announced that it had rejected 214,799 carbon credits.

In a statement, Dirk Messner, the President of the Environmental Agency, said,

“For eight UER projects in China, for which a decision on approval had to be made by 31 August 2024, we will not issue the requested approvals due to irregularities we have identified. This means that no new UER certificates from these projects will be released onto the market. This is good news.”

Messner said that remote assessment of UER projects based on satellite images and reports submitted by project developers “is often not sufficient to uncover and prove misuse of the UER system”.

The Environment Agency has therefore commissioned an international law firm with a partner law firm in China to carry out inspections of the projects in China.

In seven of the eight projects, the Environment Agency states that,

[T]he applications for the approval of UER certificates for 2023 were withdrawn after the UBA confronted the project organisers with serious legal and technical inconsistencies in their projects and threatened an on-site inspection. The UBA thus ensured that no more UER certificates could be issued for these projects for 2023.

The Environment Agency determined from satellite images and “in-depth technical analyses” that an eighth project was “started prematurely”. The project therefore does not comply with the Ordinance on the Offsetting of Upstream Emission Reductions against the Greenhouse Gas Quota (UERV).

The Environment Agency is investigating a further 13 projects. Of the 21 projects under investigation, only five have granted authorisation for on-site monitoring visits without restriction.

Messner says that,

“For us, the refusal to authorise on-site inspections is a very strong indication that the project sponsors are not prepared to fulfil their obligations under the UERV or – as required by the UERV – have the necessary control over the projects. Among other things, we are taking this as an opportunity to consider cancelling our approval of these projects. And we will ensure that only legitimate UER certificates for new projects are placed on the market.”

The Environment Agency will review other UER projects “until all allegations have been cleared up”.

Police search three auditing firms

On 12 July 2024, police forces in North Rhine Westphalia and Bavaria, acting on behalf of the Berlin public prosecutor’s office, searched the offices of three auditing companies in Kerpen, Cologne, and Langenbach.

The UER auditing firm Müller-BBM Cert’s office is in Kerpen, TÜV Rheinland’s is in Cologne, and Verico’s is in Langenbach.

The Berlin public prosecutor’s office is investigating 17 people suspected of joint commercial fraud. The suspects are the managing directors and employees of the auditing firms that carried out the verification of the UER projects.

The 17 people are suspected of deceiving employees of the German Emissions Trading Authority about the existence and/or eligibility of UER offset projects.

Meanwhile, a statement on the Emissions Trading Authority’s website explains that,

If the follow-up checks show that the approval requirements for a project activity were not or are not met, the project will be cancelled. UER certificates can no longer be issued for emission reductions resulting from the project activity. If UER certificates have already been issued  for the project activity in question, UER certificates in the corresponding amount will be deleted from the project sponsor's account.

If an auditing firm is found to have repeatedly or seriously breached accreditation standards, the Environment Agency can submit a request to review the auditing firm with the German Accreditation Body (DAkkS). The Environment Agency can also revoke the registration of the auditing firm, or exclude the firm from future audits.

While it is good that the German authorities are (belatedly) taking action regarding this carbon offset fraud, I can’t quite shake the feeling that they are trying to close the stable door about a year after the entire farm burned down.

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