A national approval procedure to prevent future fraud

Claudius Nießen: Hello, and welcome to a new issue of our #StrawClever podcast. Here in the studio as usual is bioenergy expert Claus Sauter, founder and Chief Executive Officer of Verbio. Today we want to address in more detail the current climate fraud that is going on in the German and European biofuels markets. These fraudulent schemes have already been discussed in recent issues of our podcast.

In today’s issue of #StrawClever we are going to take another close look at this topic, also taking into account the Federal parliamentary elections planned for February and considering possible political solutions. To do this, today we welcome another guest here in the studio, someone who knows the political discussion on biofuels as well as anyone.

Stefan Schreiber, welcome to the podcast. Stefan Schreiber is a member of the Management Board of Verbio, where, among other things, he is responsible for Global Trading and Corporate Affairs. He is also President of the German Biofuels Industry Association (Verband Deutscher Biokraftstoffhersteller – VDB), and one of three speakers for the “Stop Climate Fraud” initiative (Initiative Klimabetrug stoppen), an action group of more than 100 companies and renewable energy trade associations.

In recent months, this group has been intensively examining the fraud scandal and making constructive proposals to German politicians about how to address the issue and prevent fraud in future. Once again, Claus Sauter, Stefan Schreiber – thank you for taking the time to join us here in the studio.

Stefan Schreiber: It is a pleasure for me, too, to be here for the first time. Good morning, Mr Niessen!

Claus Sauter: My pleasure, Mr Niessen, I am looking forward to a new round of discussions here on the podcast. 

Claudius Nießen: Mr Sauter, let’s get started. The German biofuels industry is currently under a lot of pressure. Can you briefly explain what is behind this, exactly?

Claus Sauter: Well, basically, it is about the structure of the German biofuels market, where biofuels are not all the same. When waste and residual products are used, and in particular where no palm oil is used, then, under certain conditions, biofuels are given multiple credits, and especially in Germany the greenhouse gas savings are very important, the savings that are generated from biofuels.

There are levers here. I think it is almost exactly two years ago now that we recorded a podcast where I referred to this fraud. Since then another fraudulent aspect has been added, which means that, on the one hand, we have these imports of biofuels created from raw materials that are not the biofuels that they are declared to be.

They are not residual materials, and not residues. Meanwhile, on the other hand there are also upstream emission reduction (UER) projects. Here we have to explain that upstream emission reductions, or [the reduction of] emissions that arise during the production of crude oil, can also be counted towards CO₂ reduction in transport in Germany.

For example, take a borehole somewhere in Nigeria or China. When crude oil is extracted, natural gas is automatically emitted as well, and if this natural gas escapes directly into the atmosphere, the damage to the climate is many times greater than that caused by CO₂. So in Germany they said, okay, if someone carries out a project there in these crude oil producing countries and emissions are then reduced, they can also be counted towards CO₂ savings in transport in Germany.

I mean, that was introduced in 2020. I already said back in 2019, who thought that up? It’s just a load of rubbish. Of course, measures can be taken to reduce emissions, harmful emissions, on the spot where crude oil is extracted. But what does that have to do with reductions in greenhouse gas emissions in Germany?

And yes, that has been dropped on us. We pointed this out to politicians many, many months ago – but as usual, nothing happened. Then, however, perhaps some listeners will be familiar with the documentary Frontal on [the television channel] ZDF. ZDF took up the matter and checked it out, and it turns out it is possible to look at the locations where these emission reductions are supposed to have taken place, because these projects have to be checked by the Federal Environment Agency and they are published on the agency’s homepage. Then a journalist went to pay a visit to a few of these projects in China, and found that either there was nothing there, or that the projects had already been realised in 2015 or 2013, so they didn’t fall within the time frame at all. 

I always quote the most striking example. One of these UER offsetting projects was a mothballed chicken shed near Beijing! The journalist went there expecting to see an environmental protection project, and all that was there was a disused chicken shed.

And just to give you a feeling for this: the Federal Environment Agency then confirmed CO₂ measures for this mothballed chicken shed, reporting volumes with a value of around 80 million euros. 

Claudius Nießen: Those are some pretty big unlaid eggs. 

Claus Sauter: Yes! But it only confirms what we have been saying for years – and with this report from Frontal, the whole thing took on a certain dynamic.

Then, we in the Management Board said, okay, we now have to do something about this. This has nothing to do with our business, we have our strategy, we continue to produce our biofuels and everything is going very well. But if there is cheating going on, then someone really has to take care of it, and regulatory matters were actually my responsibility. But then I swapped roles with Stefan, and now above all it is Stefan – which is why he is here today – who has been working intensively on the issues for months now, and who is also conducting the discussions that can now finally be held, where previously there was actually no interest at all.

Claudius Nießen: Before we approach the political side of the problem with Stefan Schreiber, Mr Sauter, the keyword China has already been mentioned, but the issue of China – I remember from one of our earlier episodes – has also been mentioned when it comes to biodiesel imports. Could you explain to us in two or three sentences what this second problem is in the end, what the issue is?

Claus Sauter: It is the second problem when I tell it, but in fact, it was the original problem. As I said, not all biofuels are the same, but if residual materials and waste of any kind are used, then the greenhouse gas savings count for more. Because you do not want to use primary raw materials, i.e. pure vegetable oil or grain, which are also limited, the idea is to use more residues.

However, about two years ago we realised that large quantities of palm oil biodiesel were coming to China from Indonesia and Malaysia. There is no biodiesel market at all in China. We asked ourselves what happens to this stuff, and then we realised something, which we can illustrate using the example of an island the example of an island – Hainan, in the South China Sea.

The good thing about an island is that it is possible to observe what comes in and what goes out. What happened in Hainan was that palm oil-based biodiesel came in from Indonesia and Malaysia, and what went out was advanced biofuel. And when this stuff arrived in Europe, and when it was analysed, it was of course possible to determine that the base molecule was palm oil.

The documentation confirmed that this palm oil did not come from the tree, but that it came from a fat separator or deep fat fryer. This would mean that it had already been used in the food sector, and therefore the biodiesel was an advanced biofuel.

However, we operate the same system. We make advanced biofuel, and we know that this requires a different technology and different processes. Above all, working with this stuff is laborious. We saw the prices at which the fuel from China arrived here, and it was clear to us that something wasn’t right. 

However, I would like to make a clarification here. It was not the Chinese who had cheated; they had simply continued to produce their biofuel. The situation was that the people who read the laws are much cleverer than those who write them. There were clever profiteers – primarily from Europe, because to do that one needs to know the legal situation here – who then made sure that the slip of paper contained the information needed, on the confirmation, on the certificate.

The most significant thing about it was that nobody went to China to check, because the Chinese would not allow that. That means no checks could be done. It [the fraudulent biodiesel issue] was practically the same situation as with the UER measures; they have just relied on what was written on the paperwork.

From a retailer’s point of view I can say that those who practised this fraud had the advantage. China was a black hole, with biodiesel coming in from Indonesia and Malaysia and another product going out, and the Chinese not letting anyone in to carry out checks on it. That opened the door to fraud.

Two years ago, it was suspected fraud, but now it has been confirmed. The Federal Environment Ministry also admits this, as does the Federal Environment Agency. So now the question is, how do you deal with it? Measures have already been taken, but Stefan can say a lot more about that.

Claudius Nießen: Mr Schreiber, now we are right in the middle of the political side of this problem. What exactly is behind all this? 

Stefan Schreiber: Claus has already hinted at it. For about two years now, we have seen a significant increase in imports of advanced biofuels, especially from China. During this time the amount has roughly doubled, which of course leads to the price pressure described by Claus, and, in addition, to an oversupply of so-called GHG quotas. Every product implicitly contains a greenhouse gas saving that has a value.

At the end of the day, you have to prove to the German authorities that you have reduced your carbon footprint; we have a so-called GHG quota, and parties are obliged to meet the quota, usually the mineral oil companies or petrol station operators that put petrol and diesel fuels on the market. And this year, that quota is 9.25 percent compared to the reference value, i.e. if 100 percent were fossil fuels.

So because of the fraud there has been an oversupply of these so-called GHG quotas or savings, which naturally pushes down the price per tonne of CO₂ savings. That is the big problem, because this GHG quota – in itself a sensible and efficient instrument – combines all the available fulfilment options. This means that it also affects markets that, on face value at least, have nothing to do with biodiesel. 

Claudius Nießen: You mean it is not just the biofuels industry that is suffering from these practices? 

Stefan Schreiber: Exactly. For example, electromobility also suffers. If you are a municipal utility and you have purchased an electric bus, then before the fraud schemes, around one third to a half of the additional costs of that bus could be recovered through the trading of GHG quotas.

So the additional costs could be offset to a significant extent. Today this has slipped to a fraction of that, because the price of each tonne of CO₂ saved, the so-called GHG quota price, has plummeted. 

Claudius Nießen: Mr Sauter, how much of an impact has this had on Verbio?

Claus Sauter: Well, to be specific, two years ago a tonne of CO₂ savings cost 400 euros. Now we are looking at 50 euros. The fall is dramatic. And of course, as we saw, in the last financial year our income has fallen successively. Although we produced significantly more biofuels than in the previous year, we generated around 30 percent less revenue due to this issue. Net earnings have been cut in half compared to the previous year.

Claudius Nießen: Solely because of this problem?

Claus Sauter: Solely because of this problem! Now we have to make sure we get through this. Some of our competitors are already insolvent; many plants in Europe are at a standstill, unable to produce. After all, Germany is the largest market in Europe.

In France, this problem has not arisen in the same form because the French have a national authorisation system. They are not just relying on the Chinese paperwork; they have implemented their own systems. So of course, the whole industry is looking at us [Germany]. Because, I mean, today we are really just the tip of the iceberg. What is at play is the decarbonisation of the steel industry, of chemicals and many other industries.

If you stop using coal to manufacture steel in the future, and replace it with renewable hydrogen, eventually cheaper steel with the right certification will start coming from China. Then the manufacturers here will have no chance. So that weighed heavily on us. Margins have fallen, but our plants are still running.

So now it is all about the question of what happens next. Brussels has already reacted somewhat; there are now anti-dumping duties. And because it is no longer so attractive – palm oil has become relatively expensive compared to rapeseed oil – we can already see that imports from China have fallen massively.

Everything has stabilised at this level, but it is also about preparing for the future. We are currently at 10 percent greenhouse gas reduction in transport, which means 90 percent of the journey is still ahead of us – and during the times when things were going well, many companies naturally invested in new facilities. You mentioned the “Stop Climate Fraud” interest group; well, it’s not for nothing that this group contains more than 100 companies, that is a lot, and they have an interest in getting this sorted out once and for all, because of course their investments are massively jeopardised. As we have been saying for years, there is no business case for us that would justify new investments. We made the decision to invest outside Germany years ago, but of course, we are always looking to see if there are any opportunities at home, because the regulatory framework and the targets that have been set for 2030, which are already in law, are actually all very, very promising.

This is about the rules of the game, how it is implemented, and these need to be upheld. And of course, the legislator, and above all the Federal Ministry for the Environment, has a duty to monitor these rules. Not just in our area, too; at the moment it affects us directly, but it affects many other areas as well.

Meanwhile you can see the caution in other areas, too. The steel industry is questioning the whole issue of hydrogen again. Batteries – big drama now. The industry is looking at what is happening with us now, but we as a Company have reacted. We have positioned ourselves internationally.

We are in the USA and in India. We are breaking new ground, moving out of the transportation sector, and in future, we will no longer only recycle our products to create energy, but also to manufacture materials – in other words, products for the chemical industry, where not much has happened yet. But in my view, that doesn’t change the facts.

These are future projects that will come to fruition at some point in the future, but our plants have to run in the here and now, and we also have to be profitable now. Well, yes, we are profitable, but if someone cheats you, there is nothing you can do. 

Claudius Nießen: Mr Schreiber, we have been talking about it here in the podcast from time to time in recent episodes. Not only about these cases themselves, so to speak, but also the fact that politicians have hardly reacted, if at all. We have already talked about this initiative. What has happened in the industry since then, beyond your involvement as a company? 

Stefan Schreiber: Yes, perhaps I’ll start by saying that almost two years ago we started to draw the attention of the Ministry of the Environment to the ramp-up of these allegedly fraudulent imports. In the beginning, there were constructive discussions about what could be done and how this issue could be brought under control. This culminated in a workshop that was organised by the BMUV itself, with many industry representatives getting together to discuss solutions.

We submitted written proposals as a Company, and the industry did so too. This means legal opinions about which regulations need to be adapted, what needs to be done. And there was a consensus – perhaps not on every single point, but the measures as a whole were supported by everyone. The mineral [oil] industry was also involved.

But after that, there was silence. By this, I mean that requests for talks were no longer answered, or they were dealt with dismissively. Meanwhile the pressure in the market grew and grew, and the problem grew bigger and bigger. Then we asked ourselves what we could do now, and as a result, we founded the "Stop Climate Fraud Initiative" together with other companies.

This is just a loose alliance, but it has never really happened before, that companies that are actually in competition with each other when it comes to climate protection, i.e. companies involved in biofuels, electromobility, synthetic fuels, or e‑fuels, have come together to actually draw attention to the problem.

In fact, for a start that can be seen as a great success. And I think it was only because of this initiative, and this wide-ranging support for it, that there were reactions. In the field of UERs, it was decided relatively soon after the initiative was founded that no new UERs would be recognised from July 1, 2024. In other words, existing projects would still be allowed to mature, that is through until 2025, but no new ones would be added. And on the subject of biofuel imports, an attempt has at least been made to stabilise the market in the sense that these – I mentioned it earlier – these enormous surpluses of supposed CO₂ savings, which have depressed the quota price, have been excluded from offsetting in 2025 and 2026. Of course, this means that they will be back on the market in 2027, but we now have two years to solve this.

That was certainly an important step. What we have not actually achieved yet is how we deal with fraud or alleged fraud. In other words, what do we need to do? Because we are not only being duped here as an industry, but also as a country, i.e. as a government. What do we do to prevent this from happening again?

You also need to know that the supervisory authority, which checks these certificates and verifies these credits, does not have the information that would enable it to trace fraud or to even prove that it was not fraud. This information does not even exist.

Claudius Nießen: In other words, it is a toothless tiger. 

Stefan Schreiber: In principle, it is a toothless tiger, and that is where our next demand goes, so to speak. We are calling for the amendment of this, technically to the 38^th Regulation on the Implementation of the Federal Emissions Protection Act (Verordnung zur Durchführung des Bundes-Immissionsschutzgesetzes – BImSchV), which was created to put a stop to surplus CO₂ savings being carried forward to next year. That was certainly the first step, but without effective fraud prevention, this too would eventually come to nothing.

So these are the next steps that we have ahead of us as an industry or as an initiative, so to speak. 

Claudius Nießen: If you look at these successes, or at the steps you still have ahead of you, would you say that this joining forces – in other words, clearly demonstrating that it is not just us as a company, not just us in our industry, who are saying that there is a problem, but that the scale of the problem has been recognised – has this changed anything in politics? 

Stefan Schreiber: I am a bit cautious about that. Yes, we are receiving a lot of support from the opposition, namely the CDU and CSU. I believe them, too. But it has to be remembered that as the opposition, it is somehow natural that they get involved.

However, it also has to be said that the ladies and gentlemen there are working very hard for us. Nevertheless, they are not in the government. After several months, we are now also seeing that Social Democrats, or parts of the Social Democrats, are agreeing with us, and behind closed doors we are now also receiving support from Green politicians and state secretaries, and that has certainly had an effect. This has not been made public, but for example, we were informed last week that they are actually working on a so-called authorisation, or, as I call it, a registration procedure, where everyone who wants to supply advanced biofuels to the German market first has to register.

Claudius Nießen: It’s a bit like the example we just heard about from France. 

Stefan Schreiber: Exactly, that was the blueprint, so to speak. We took a very close look at the two examples from France and Belgium, and then said that it actually makes sense.

We just need to extend it to include a right to make an on-site visit. That means that it must be possible to make an on-site visit if any doubts remain after an examination of the documents. By the way, we can also see this with the UER. As a rule, the projects that do not allow on-site inspections are the ones that are problematic. So that would be an important step.

We only have one small problem, which is that we will have elections soon. In other words, the Ministry of the Environment originally intended to transpose this into German law together with the Renewable Energy Directive III. However, this can no longer take place straight away; it will have to be done after the next general election, when there is a new government.

Nevertheless, we believe that this authorisation or registration procedure could be adopted by use of a decree instrument. That is what we are arguing for now, and we are currently still in talks with the Ministry of the Environment. 

Claudius Nießen: In addition to this authorisation procedure, what about sanctions? If I have understood this correctly, there is a fraud or a scam, but we haven’t talked yet about what the disadvantages are for those who currently engage in these dirty business practices. 

Stefan Schreiber: That’s a good question. The following problems... (laughs)

Claus Sauter: No, let’s keep it short. They face no consequences.

Stefan Schreiber: There are currently no consequences, because we always have to consider the dichotomy. Let’s take a look at the topic of UER, i.e. upstream emission reductions, where the majority of the offsetting savings have already been credited for quota purposes. They have been confirmed as legal by the supervisory authority, and it is possible to undo that, but the legal hurdles for this are very high. Yes, in this respect I can reject them on paper, but in fact these savings are in the market and continue to put pressure on the quota price.

When it comes to biodiesel, obtaining evidence is much more difficult because the product has already been processed and it has been passed through an exhaust pipe. In other words, it is very difficult to trace this back without any data, as I said earlier.

That’s why, when it comes to biodiesel, we have focussed on saying that we must at least shape the future in such a way that we can recognise fraud in the first place, and then penalise it. What does penalise mean? I cannot enforce a right of access under international law, but of course I can say that if someone wants to sell an advanced fuel in Germany and wants it to count towards a sub-quota or receive double credit, both of which are particularly worthy forms of support, then I can say: if you don’t fulfil these conditions, then I will withdraw your certificate.

Yes, this possibility exists, and that is the way we want to tackle the problem under international law, so to speak. Incidentally, this is also the case in other countries that already practise this. 

Claudius Nießen: If this is the solution in other European countries – we have Belgium and France as role models – why hasn’t it happened here yet?

Stefan Schreiber: That’s a good question, as to why it didn’t happen. To be honest, I do not want to speculate about the reasons. I can report on what is being put to us as an argument – that it is recognised that the problem certainly exists, that checks for or any type of controls at all must be established, but that this is more of a European problem.

They want to ... they are still trying to do that, and we are also supporting the ministry in standardising this at the European level. On the other hand, it has to be said that we have also been ringing alarm bells in Europe for two years, and so far even less has happened there than in Germany.

This is certainly also due to the fact that the directorate there is somewhat overwhelmed by the large number of tasks that have been imposed on it by the Green Deal, so to speak. In this respect, we say yes, Europe is the right solution, but it won’t be within one or two years ... so it will take at least one to two years at least to implement it at that level. As an industry we cannot wait that long. Many companies would not survive. 

Claudius Nießen: It really is an existential problem.

Stefan Schreiber: It is absolutely an existential problem, as the first bankruptcies have already shown – and not only in the biomethane sector, where a lot has been heard about it in the press coverage, but in principle also on the electric side. I get ... as a driver of an electric car or bus driver, I’m allocated certificates for the savings that are likely to be made over the lifecycle, and I can trade these.

So, there are companies that practically pool this from private individuals. Yes, their business volume has also more than halved, it has fallen to 20 percent. However, the fixed costs have remained the same, and the first companies have already gone bankrupt. It really is an existential problem, and if I seriously want to pursue the energy transition then I have to do something here, and the state cannot allow itself to be taken advantage of. Something has to be done.

Claudius Nießen: Yes. Mr Sauter, is this one of the reasons why, as we have discussed in previous podcast episodes, your commitment and focus on America or the USA is so great at the moment? 

Claus Sauter: Absolutely. I mean, Stefan has explained it. There are no consequences. There was also fraud in the USA in the biofuels sector.

Today those responsible are all sitting in gaol. Here, what I am saying is, we really are talking about damage in the billions, and nothing is being done about it. So just looking at the facts with the whole issue of decarbonisation, treating the Chinese differently in these matters is difficult for me to understand, and we see it in everything. I mean, it took two years for these anti-dumping duties that we now have on Chinese imports to be enforced in Germany.

In [relation to] China, Biden announced it on Friday at some point, and the following week, on Wednesday, it was implemented. I mean, as unfortunate as it sounds, you do have a different environment in the USA. I mean, these are the areas. We are moving further and further away from our actual core business, namely as a European producer in Germany, in Europe, producing biofuels for the decarbonisation of transport.

And our contribution, which is absolutely sensible and verifiable, is not taken into consideration at all. And as long as that continues ... we now have the advantage that we built our plants many years ago, they are up and running and we can therefore still produce at this margin level. Speaking now as a businessman, it is of course not an entirely bad thing when competitors disappear from the market, but it simply shows the chaos, the uncertainty, and also the lack of understanding in parts of politics that if I want something, if I want to realise any political goals, then I need investors and I have to guarantee these investors a stable environment.

I’ve come to hate ranting about politics in my podcasts, but at the end of the day they make the rules of the game, they interfere massively, and then one also has to think the issue through to the end. We went to the USA. We are in the process of putting our plant in the Midwest into operation.

We are monitoring further developments in Germany very closely. Something has happened now with these quotas no longer being counted. The years 2025 and 2026 will be really tough for the mineral oil industry, because we are talking about a de facto doubling of the CO₂ savings that they have to deliver – with, at the same time, the collapse of suppliers, i.e. domestic bankruptcies throughout Europe. The Chinese are more or less out of it now too, on the one hand because of anti-dumping duties, and on the other hand, they have also taken measures in China itself. The Chinese now want to use biofuel themselves, and are working on their own decarbonisation strategy for transport.

And what is most important, the Chinese also subsidised the export of this residue-based biofuel, but above all the residues themselves, with a so-called tax credit. That is 120 to 130 euros per tonne of raw material. So that is significant. This has no longer been the case since December 1. In other words, there have been a series of measures – but the most important thing is what Stefan said: you have to make sure that the stuff is checked, and above all, that there are consequences. We are talking about a supply chain law where in future you will have to prove which raw materials are being used to make shirts, from top to bottom.

However, when it comes to ensuring that a party obliged to fulfil the quota in Germany must prove or at least take the necessary care to ensure that his supplier delivers the correct product – there is no such thing in our industry; instead there is explicit trust. And then we are also working in India.

I was there in September, and we are making great progress. Here, too, we take a different approach; it’s not so much about biomethane as a molecule, but more about the fact that 20 million tonnes of biomass are burned every year. Wheat is grown and rice is planted on top of the wheat, and the wheat has to be back in the ground about 30 days after the rice harvest.

During this time, the only option is to burn the straw because it does not have time to rot. And we’ve all seen the pictures of the resulting smog, affecting hundreds of millions of people. And this year it was particularly bad, because the rice harvest was delayed by the weather; this period shrank even more, and I hear from my Indian colleagues that it has never been as bad as it was this year.

Delhi had to close companies, universities, and schools. People stayed at home, and, you know, there is nowhere to hide from this smoke. That’s terrible. When you go to the supermarket and come home, all your clothes stink, and your apartment stinks.

These are really devastating conditions. I had an appointment with the Prime Minister’s Office in September – not directly with Modi, but in his office. And we said, look here, we’re collecting 100,000 tonnes of rice straw right now that won’t be burned. Of course, there is still a long way to go before we reach 20 million tonnes, but we have a solution.

But India is highly regulated. For example, the farmers get their fertiliser for free. We also produce a fertiliser. Then I said, okay, then I want the subsidies that those who produce fossil fertilisers get too. Only ... we need a level playing field. Many things were not clear to the Indian authorities, but we have now made great progress, and the aim is to simply roll it out on a massive scale. But back to our actual core business of producing biofuels for Germany and Europe – we are moving further and further away from that. I think it’s also understandable for everyone when you think about the topics we talk about here on the podcast. Actually, it goes without saying that simply ... the legislator has the right to define the rules of the game, but then those rules must also apply to everyone. Not only for local producers, but also for international ones.

I am also of the opinion that the biodiesel issue can be reversed, too. If you ask me today – if you bought a train of biodiesel in September 2019 and you want to know where the raw materials come from, then I can tell you that, we can document it. So now, where the biodiesel came from, it came from China, the documents are also there.

What’s wrong with sending someone there and saying, I want to see the plant now? Number one, if they just technically cannot do it [manufacture the biofuels], I can tick that box, and I maintain that the majority of plants cannot process these raw materials at all. Why is it only us who have to prove where the raw materials came from?

The Chinese [manufacturer] must also be able to prove this, just the same. And if he can’t provide proof, then it’s exactly the same as with the UER. It’s not quite so simple, because if you’re standing in front of an empty chicken coop, you can see that relatively quickly. The other is a bit more complicated, but the simple fact is that the allegation we made – and now I’m changing my wording – that Chinese products and Chinese projects are being and have been used to defraud the European market, that this allegation was correct, has been confirmed now. But it’s been two years since we raised our hand, and nothing has happened for two years. That is very worrying. 

Claudius Nießen: Mr Schreiber, Mr Sauter has now said two things. On the one hand, Verbio is doing well in this environment as a robust player on the market, so to speak, despite all the challenges. And on the other, he said that he no longer wants to have to rant so much about politics in our podcast.

You just said that in principle, at least as I understood it, there is at least hope. The German government and the EU are basically willing, or have at least signalled that they understand the problem. Mr Sauter also said that there is massive damage, there was massive damage. What about the damage caused? 

Stefan Schreiber: Yes, when I said that we are being listened to, or at least that we are being told that things are being worked on to find a solution, I was referring to Germany. I would not like to confirm this at the European level. I hope that there will be developments there too.

Germany is indeed strongly in favour of stricter rules at European level in terms of controls – but also sanctions. But there are no results yet. I can’t say anything about that. Such damage was caused by both counterfeit biodiesel and counterfeit UERs.

In the case of UERs, the damage is also quantifiable. However, the hurdle is the subsequent derecognition, so to speak. I would therefore have to accuse the project sponsor or the obligated party of intent, which is naturally difficult to prove unless I have documents at my disposal. But we have no information about what can be expected from the public prosecutor’s office.

That is why I suggested last week at the hearing in the Environment Committee that there should be a political solution, because even if it is possible to reach a legal settlement, it will take a very long time because it is always a case-by-case assessment. And we are talking about 75 projects in total. Of these, 45 were proven to be counterfeit UERs about eight weeks ago.

The rest was still under investigation. This means that in the worst case I have 75 individual cases that have to go through court proceedings and so on, and that takes a long time. As I said earlier, the industry does not have time for this. The economic hardship is so great that this will come too late. So, in my opinion, a political solution is needed.

Since fraud can be proven, for example, a surcharge could be applied to the years 2025/26 or subsequent years, in order to make up for the climate protection that has not been achieved. This would not repair the damage already done, but from the consumer’s point of view there would at least be a chance that they would actually get the climate protection they paid for.

And second, of course the companies would not be weakened by a further increase in demand. On the subject of biodiesel, I would like to disagree with Claus a little. Some of the information is not available. I myself have submitted a UIG, i.e. an Environmental Information Act Enquiry [Umweltinformationsgesetzanfrage], to the supervisory authority. 

But the legal department confirmed to me that the documents do not even exist. That means I can’t check anything. If I don’t check anything, I can’t prove anything. In other words, we really need to work on fraud prevention. 

Claudius Nießen: What does this relate to? Can we put this in context in relation to what we have recently read, that there are now law firms that are at least considering the possibility of bringing actions for damages in the event of breaches of official duty by the respective authorities? How would you assess this? 

Stefan Schreiber: As a company, we were not the driving force behind it, but there are companies and players in the industry that have been working on this. I am aware of two expert reports that have either already been prepared or are in the process of being prepared. Interestingly enough, when the Handelsblatt article on this topic appeared a fortnight ago, which brought us quite close to a lawsuit; we received calls from companies asking if they could participate.

But to clarify once again, we did not initiate this, and we have not been significantly involved in it to date. Of course, we cannot rule this out forever. That is all I can say at this time. 

Claudius Nießen: Mr Sauter, you have just said quite a lot about Verbio’s current situation. I would also interpret that as a description of how resilient Verbio is at the moment. Basically, how do you see the whole current situation from your company’s perspective? We’ve heard all sorts of things about how you’ve lost sales, how you’ve lost margin, but we can all look up the share price on the internet, and let’s put it this way – the development has not been satisfactory either for you or for the shareholders, right?

Claus Sauter: No, absolutely not, but the share price only reflects the earning power and future prospects of the Company, those two things. I think the all-clear can be given for 2025 and 2026. Our business will recover. As far as future prospects are concerned, the initiative is needed above all, and of course, Stefan must also make clear to the politicians what needs to be done.

But we don’t need to invent anything new. There are examples in Europe of what needs to be done to set the right course, so that simply ... as I said, it’s not just us who are affected, but the entire industry. When it comes to decarbonisation, it must be ensured that the rules are adhered to.

Apart from that, we are continuing to invest in things that are not related to transport in Germany and Europe. Internationalisation, as I have already mentioned; we have the two plants in the USA, a biodiesel plant in Canada, the project in India and ethenolysis. But these are all investments that depend on the current cash flow from the core business.

This has been lower. However, things are already looking better in the second quarter – but of course we have to look very closely at how the cash flows are developing, and how this will continue. Then, if necessary, you simply have to stretch certain investments a little. But with respect to the things we have in the pipeline there, which will make us even more robust for the future, nothing will change.

We are continuing with these [projects]. Yes, I think everyone has realised that this is not just about biofuels, which are not particularly well regarded in Germany, but also about the electromobility sector. It is about these other areas where big, big investments are pending. What companies need to think very carefully about is whether it makes sense to invest in this new, more expensive technology here in Germany.

Or should we go somewhere else straight away? You can say what you like about America; Trump is a peculiar personality, but when it comes to business and manufacturing in the US, then he is stringent. And as a producer, and that’s what we are, as a producer in the USA, in North America, we are of course now benefiting in return from this strict America First policy. We are part of America First.

The fact that we are introducing a new technology is definitely being honoured. I mean, many, many regulations there in the IRA are ... if we had to write it, we would have written it the same way. It’s all about greenhouse gas efficiency, if you have particularly good products. And we have those.

We are way ahead when it comes to GHG savings. Then you get additional subsidies and so on. We are currently in this start-up phase. Also, the subsidy for investments – if you think about it, we started in 2019, and then the IRA came in 2020. Everyone in Germany would have said, yes, wait a minute, but only for investments starting in 2020.

No, nobody in America cares about that. We started the investment without taking the IRA into account, then it came, and then everything was finished and we got it anyway. Unimaginable in Germany, and at the end of the day it was about 40 million dollars. And it all worked easily and smoothly.

I can’t really talk about the USA, but we are quite positive. But as for the rest, we want to get that completed now. I think the fact that there are now more than 100 companies in this interest group also shows that there is massive pressure behind it. 

Claudius Nießen: Mr Schreiber, Mr Sauter has virtually just given an outlook for the Company, for Verbio itself. What do you think with regard to the industry –above all, of course, in view of the upcoming federal elections? What will happen next? 

Stefan Schreiber: I would hope that the new government will correctly recognise the importance of our industry. Today we are contributing the lion’s share to climate protection in the transport sector, but sometimes I have the feeling that I have to justify my existence. Something does not add up. In the meantime, even the electro guys have the feeling that they have to justify their presence. To be honest, that doesn’t fit together. I would simply like to see a predictable environment, appropriate appreciation that is expressed in predictable regulations, and, above all, for biomass to regain the status it once had as a problem solver.

Plants are the most efficient CO₂ absorbers; they don’t need a lot of technology. If I use this sensibly for energy products, then that provides a very positive momentum, which is seen in the rest of the world. I always have that feeling, except in Germany. This appreciation needs to be restored, so to speak, and I am optimistic that this will happen. 

Claudius Nießen: In today’s episode we have heard a lot of very specific points about how the current or the new federal government can help the industry through effective regulation – and, in the view of Mr Schreiber and Mr Sauter, it must do that, so that Germany does not jeopardise its own climate protection policy.

I would like to take this opportunity to thank you very much, Mr Sauter, for always being a guest here on your own #strohklug podcast. Thank you to you as well, Mr Schreiber, for this guest appearance. I think this is something that we should do again. 

Stefan Schreiber: Thank you. 

Claus Sauter: Yes, of course! Thank you. 

Claudius Nießen: Thank you very much also to our listeners! Until next time, with a new issue of the #StrawClever podcast. The #StrawClever podcast can be downloaded using Apple Podcast, Deezer, Google Podcast, Spotify, and of course on the strohklug.de website. So it’s good-bye from me until next time. See you soon!

Available on Apple Podcast, Deezer, Google Podcast, Spotify, and of course on the web at strohklug.de.