Palm Oil Fraud Probe Exposes Supply Chain Gaps, Links Major European Biofuel Firms

Palm Oil Fraud Probe Exposes Supply Chain Gaps, Links Major European Biofuel Firms

By AFP and SourceMaterial

European energy majors Eni and Neste received shipments from Indonesian companies now at the center of a major fraud investigation, a joint investigation has found. The probe alleges a scheme to relabel palm oil as a waste byproduct, raising significant questions about the integrity of green fuel supply chains.

Indonesian authorities allege local firms, in collusion with officials, systematically mislabeled crude palm oil as palm oil mill effluent (POME)—a waste product that attracts lower taxes and is considered a more sustainable biofuel feedstock. The alleged fraud, which authorities say defrauded the state of millions in tax revenue, directly implicates companies that supplied the European biofuel market.

Both Eni of Italy and Finland's Neste, a leader in sustainable aviation fuel, have publicly committed to removing palm oil from their supply chains due to its link to deforestation. The EU has mandated a phase-out of palm oil in biofuels by 2030. The revelations threaten to undermine these sustainability pledges and expose critical weaknesses in certification systems.

"This isn't just a tax fraud in Indonesia; it's a direct assault on Europe's green transition," said Maya Chen, a supply chain analyst based in Singapore. "When major firms with public climate goals are linked to such schemes, it erodes the very foundation of consumer and investor trust in green fuels."

The investigation identified three Indonesian companies whose directors were arrested last month: Green Product International, Surya Inti Primakarya, and Bumi Mulia Makmur. Trade data shows these firms shipped products labeled as POME to Eni and Neste between 2022 and 2024.

Eni stated it had no direct contracts with the accused firms and relied on an accredited supplier, Enviq, which has suspended dealings with them. Neste said it instructed its suppliers to exclude implicated companies and that its own sample analyses were "consistent with palm-derived waste."

However, the International Sustainability and Carbon Certification (ISCC) body, which certifies EU palm oil imports, confirmed that one of the accused firms, Green Product International, still holds a valid certificate. This has sparked calls for tougher oversight.

"The system is clearly broken," said David Forsythe, a Brussels-based policy advisor for renewable energy. "Certification is meant to be the firewall. When it fails, it calls into question the entire regulatory framework for imported biofuels."

The reaction was more visceral from Anya Petrova, an activist with the Forest Watch Network. "It's an absolute scandal!" she exclaimed. "These corporations parade their sustainability reports while their supply chains are soaked in fraud and deforestation. It's greenwashing at an industrial scale, and regulators are asleep at the wheel."

A more measured perspective came from Professor Aris Widodo of the University of Indonesia. "This case highlights a perverse economic incentive," he noted. "The significant tax differential between palm oil and POME, coupled with high EU demand for 'green' feedstocks, created a lucrative opportunity for fraud. Solving this requires addressing the root cause: the market structure itself."

Allegations of POME fraud have persisted for years, with some analyses suggesting EU import volumes exceed plausible global supply. In response, Ireland has already ended biofuel incentives for POME, with Germany set to follow in 2025.

The findings underscore a growing dilemma for the biofuel sector: balancing the urgent demand for renewable energy sources with verifiable, ethical supply chains that deliver on their environmental promises.