German whistleblower Shell says Chinese emissions-cutting field was actually a chicken farm

A CEO who announced a partnership with Shell on an emissions-cutting project says a Chinese oil field supplied by a German sustainable fuel group was actually a chicken farm, as Germany battles allegations of a potential $5 billion fraud on carbon reduction schemes.

Several biomethane suppliers who have worked with major oil and gas companies for upstream emission reduction (UER) credit schemes say dozens of overseas projects have been rigged, drawing attention from German regulators, auditors and companies like Shell.

Zoltan Elek, CEO of Landwärme, a biomethane supplier 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.

Emissions reduction schemes such as UER help major oil and gas companies meet their greenhouse gas (GHG) reduction quotas. The carbon credits obtained in this process are traded on the open market to allow businesses to offset their CO2 emissions.

Semaphore first reported Elek’s complaint Wednesday morning.

The chicken farm was just one of several fake sites Elek says a Chinese whistleblower discovered in September.

“The whole documentation always looked really good and perfect,” Elek said wealth. “But if you took out something like geo-coordinates, you ended up somewhere, sometimes in a lake, sometimes in a chicken farm.

“It’s like someone wanting to generate some CO2 credits with a windmill and just going out into the country and taking a picture of a windmill they don’t own.”

The company auditing Landwärme’s project told the German publication Die Welt the error resulted from a typo.

“Every project, the geographical coordinates are on the front page. So it was easy to Google it and see what was out there,” Elek said.

Furthermore, several companies appear to be non-existent, with Elek finding many created in 2022 with no address or registered in Hong Kong.

Because of alleged fake carbon credits originating in China, their prices have collapsed by about 80% on the open market, Elek says.

Elek’s company has declared insolvent as Germany tries to get to the bottom of an alleged fraud that, according to a German industry lobby group, could reach $5 billion.

Germany’s UER push turns sour

UER projects achieve carbon reductions for gasoline, diesel and gas before they reach the refinery or storage stage. It’s one of the methods oil and gas giants use to reduce or offset their emissions.

These companies, including Shell, have used Chinese territory to carry out UER projects as part of their greenhouse gas (GHG) reduction quota. They receive certificates from these projects attesting that their efforts have reduced upstream CO2 emissions.

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China commissioned 90% of global UER projects in 2023, rising from an 80% share between 2020 and 2022.

However, for several months, a scandal has been circulating in the German press regarding the veracity of these schemes in the country.

Research by the German publication ZDF claimed that at least a quarter of the UER projects were forged by overseas agents.

The scandal raises serious questions about safeguards in place for carbon-cutting projects, which have grown in popularity as polluters seek to offset their emissions.

Elek has his own questions for Shell if the company is found to have invested in fraudulent projects. There have been no allegations of wrongdoing by Shell, German prosecutors investigating the project’s auditors and lenders.

“You don’t buy 10 projects with a market value of 1 billion euros 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 wealth the company always acts in accordance with relevant laws and regulations.

“This means that before certificates from UER projects are taken up or credited, the corresponding project activity is verified by the authorities in several steps,” the spokesperson said.

“In addition to statutory audits by the authorities, Shell conducts its own due diligence on a voluntary basis and fully supports any inspection by the German authorities.

“The Federal Environment Agency is currently investigating the said allegations. We await the results of these investigations.”

Germany’s Federal Environment Agency has suspended a senior employee who was responsible for approving UER projects, ZDF reported.

The country has since moved to suspend UER projects in China and stopped accepting new projects anywhere.

Elek is far from satisfied with the German authorities’ response, with carbon credits from allegedly rigged projects still contributing to oil and gas companies’ shares.

“It’s like stealing from a supermarket. You can keep the good, you can keep reselling it on Amazon and the only reaction was to close the supermarket so that no one can steal it next year.”

He fears that the closure of all UER projects will lead to further insolvencies for companies working on genuine oil fields.

The scandal threatens the future of several German sustainable fuel suppliers after Landwärme declared itself an early victim.

This story was originally featured on Fortune.com