A whistleblowing CEO who worked with Shell on an emissions-cutting project says a Chinese oil field supplied by a German sustainable fuel group was actually a chicken farm. Germany is now battling allegations of a possible $5 billion fraud over carbon-cutting plans.
Several biomethane suppliers working with major oil and gas companies under Upstream Emission Reduction (UER) credit schemes say dozens of foreign projects have been rigged, casting new light on German regulators, auditors and companies like Shell.
Zoltan Elek, the CEO of Landwärme, a supplier of biomethane to Shell and other major oil and gas companies, reported the complaint about an alleged chicken farm masquerading as an oil field to Shell’s internal whistleblowing website in January.
Emission reduction programs like UER help major oil and gas companies meet their greenhouse gas reduction quotas. Carbon credits obtained in the process are traded on the open market, allowing companies to offset their carbon emissions.
Semafor first reported Elek’s complaint on Wednesday morning.
The chicken farm was just one of several fake sites Elek discovered in September, according to a Chinese whistleblower.
“The whole documentation always looked really good and perfect,” Elek said Fortune“But if you took away something like the geo-coordinates, you would end up somewhere, sometimes in a lake, sometimes on a chicken farm.
“It’s like someone wanting to generate CO2 certificates with a windmill and then going out into the countryside and taking a picture of a windmill that doesn’t belong to them.”
The company controlling the Landwärme project told the German publication The world the error is the result of a typo.
“Every project is on the front page, the geo-coordinates. So it was easy to just Google it and see what’s there,” Elek said.
In addition, several companies were found not to exist. For example, Elek discovered that many companies were incorporated in 2022 but did not have an address or were registered in Hong Kong.
According to Elek, open market prices have dropped by about 80% due to alleged fake carbon credits flowing out of China.
Elek’s company has declared itself bankrupt as Germany tries to determine the source of an alleged fraud, which a German lobby group estimates could be worth up to $5 billion.
German UER campaign fails
UER projects achieve carbon emission reductions for gasoline, diesel and natural gas before they reach the refinery or storage stage. It is one of several methods oil and gas giants use to reduce or offset their emissions.
These companies, including Shell, have used Chinese territory to implement UER projects as part of their greenhouse gas reduction quota. They receive certificates from these projects confirming that their efforts have resulted in reduced upstream CO2 emissions.
China will lead 90% of global UER projects in 2023, up from 80% share between 2020 and 2022.
However, a scandal has been circulating in the German media for several months about the veracity of these plans.
Research by German media ZDF shows that at least a quarter of UER projects were forged by foreign agents.
The scandal raises serious questions about the safeguards in place for carbon reduction projects, which are becoming increasingly popular as polluters seek to offset their emissions.
Elek has his own questions for Shell if the company invested in fraudulent projects. There are no allegations of wrongdoing by Shell as German prosecutors investigate the project’s accountants and creditors.
“You don’t buy 10 projects with a market value of €1 billion without doing your due diligence. And I really wonder how Shell’s due diligence went through a non-existent company,” Elek said.
A Shell representative said Fortune the company always acts in accordance with relevant laws and regulations.
“This means that before certificates of UER projects are taken over or credited, the associated project activity is checked by the authorities in several steps,” the spokesperson said.
“In addition to the statutory checks by the authorities, Shell also carries out its own due diligence on a voluntary basis and fully supports all inspections by the German authorities.
“The Federal Environment Agency is currently investigating the allegations mentioned. We are awaiting the results of these investigations.”
The German Federal Environment Agency has suspended a senior employee responsible for approving UER projects, ZDF reports.
The country has now decided to suspend UER projects in China and is no longer accepting new projects anywhere.
Elek is far from satisfied with the reaction of the German authorities. Carbon credits from allegedly falsified projects still contribute to the quotas of oil and gas companies.
“It’s like stealing from a supermarket. You get to keep the goods, you get to keep reselling them on Amazon, and the only response was to close the supermarket so no one can steal next year.”
He fears that closing all UER projects will lead to even more bankruptcies among companies working on real oil fields.
The scandal threatens the future of several suppliers of sustainable fuels in Germany, after Landwärme declared itself one of the first victims.
This story originally appeared on Fortune.com
