Green Fraud: The Dark Side of Sustainability

We are learning to tread more lightly on the Earth. As consumers and voters, we are becoming more alert to the ways our choices shape our collective future. Yet while political commitment to greener behaviours creates attractive business opportunities, not all of these are legitimate, and we must be vigilant about the accompanying potential for fraud.

In 2022, FTI Consulting estimated that a new green fraud industry could cost the UK £3.5 billion a year – enough to pay the salaries of 31,000 nurses and 14,000 police officers, and to plant 200 million trees - and up to £50 billion by 2050.¹ An alarming precedent existed: the abuse of the Government’s COVID Bounce Back loans, which cheated the taxpayer out of more than £4.9 billion.² Stimulus seems to attract bad actors and green stimulus is no exception.

Two years on, efforts to protect green investment from fraud remain a work in progress. Cynics continue to exploit government-funded initiatives by providing goods and services that are supposedly green but prove not to be.

Less brazen yet equally damaging is the manipulation of ESG data by companies seeking to hit targets without actually making improvements. This is on the rise as businesses feel squeezed by pressure from multiple angles – regulators, investors, customers and activists.

Beware the Mirage

While green fraud is growing, the root problem isn’t new. Sincere efforts to preserve the environment have long been undermined by deceit.

Landfill facilities became common in the UK in the 1960s, supposedly as an antidote to noxious traditional means of waste disposal. In 1974, the government introduced landfill licensing³ but by then bad practices were entrenched – from the dumping of hazardous materials to open burning and poor coverage – further tightening of legislation has not spelled their end.⁴

Besides having adverse local impacts such as soil and aquifer contamination, landfills have bred new types of offences. Criminal gangs prosper by undercutting legitimate companies and dumping waste at unauthorized sites or exporting it illegally while engaging in money laundering and modern slavery.

Tax evasion blights the waste management sector. There is an awkward discrepancy between the theoretical liability for landfill tax and the actual amount collected. Two decades ago, this landfill tax gap was 3.3 percent, in 2022/2023 it stood at 14.5 percent.⁵

We see numerous businesses that profess to have embraced environmental friendliness – and make much of this in their advertising – while simply relocating their poor practices to places where scrutiny is less intense. We have seen companies with generous subsidies claiming to use sustainable timber when in reality its materials came from irreplaceable forests thousands of miles away.

Carbon Markets: The Dirty Truth

One area of pressing concern is carbon credit fraud. As companies try to offset their emissions of greenhouse gases, they fund projects such as wind farms and reforestation that eliminate emissions in other places. But the worth of these projects is often exaggerated or even fabricated.

One infamous fraudster, known to the media by the pseudonym Gustav Daphne, seized on the fraudulent opportunities arising from EU carbon emissions allowances. For him, the opportunity was irresistible as “the carbon market rendered even the pretence of real-world trade unnecessary because its product was an absence, an unemitted tonne of gas.”⁶ Daphne’s was a world of illusions, straw men and shell companies.

Where Gustav Daphne led, others have followed. When his scam was exposed, Europol reported that “in some countries, up to 90% of the whole market volume was caused by fraudulent activities”.⁷ Today fraudsters continue to conjure up fake credits, which denote reductions that never actually happened or engage in double counting, where a single emissions reduction is claimed multiple times. They entice investors with spurious claims about carbon credit investments. In many cases, what’s being sold is no more than hot air.

Aviation Fuel: The Promise and the Pitfalls

The aviation industry is highly susceptible to carbon credit fraud, and this is not the only green scam menacing the sector.

Aviation firms are under particular pressure to reduce their carbon footprint because the industry accounts for 2 percent of global CO2 emissions and 12 percent of transportation emissions.⁸ The International Civil Aviation Organization (“ICAO”) has set out a scheme to stabilize CO2 aviation emissions at 2020 levels by 2035, and the industry aims to achieve net-zero carbon emissions by 2050.⁹

The Potential of Sustainable Aviation Fuel

Amid the challenges of this transition, sustainable aviation fuel (“SAF”) has emerged as a promising solution, at least until other technologies such as hydrogen power reach maturity. It derives from renewable feedstocks that include waste oils and fats, algae, agricultural residues and domestic rubbish.¹⁰

SAF has the potential to significantly reduce aviation emissions. It promises to cut carbon emissions by up to 80 percent compared to traditional fuels, while also lowering emissions of other pollutants such as sulphur oxides.¹¹ It can be sourced in flexible ways and is a “drop-in” fuel, which means that it can be blended with conventional jet fuel without requiring modifications to aircraft.

Beyond the Hype

There is commercial and political will to adopt SAF. The market for it, worth $219 million in 2021, is expected to grow to $15.7 billion by 2030.¹²But there are obstacles to real progress, with greenwashing and fraud both rife.

Several prominent companies have been accused of making bogus claims about sustainable fuels. For instance, some businesses produce what they say is SAF from virgin palm oil, but dishonestly label its source as used cooking oil (“UCO”). The high demand for UCO exceeds local supplies in Europe, leading airlines to rely on imports from countries such as China and Malaysia. Because of visual similarity and limited testing, it can be hard to identify virgin oils misrepresented as recycled products, and derivatives of virgin oils are often labelled “residues” or “waste”.¹³ Many potential feedstocks are also used for other purposes, which limits their availability for SAF production.

Further Challenges of the Move to SAF

SAF is currently more expensive to produce than traditional jet fuel. Estimates of the difference vary, but the International Air Transport Association (“IATA”) conservatively reported last year that SAF’s price is around two and a half times higher, while also noting that this did not deter airlines from purchasing the entire available supply.¹⁴

In the UK, aviation is a sector of huge importance to the economy, but with that comes a huge consumption of jet fuel. In 2019 this totaled 12.3 million tonnes, with only the US consuming more jet fuel annually at 18.2 billion gallons.¹⁵ Producing enough SAF to meet just the UK’s need alone without relying on imports would use more than half of the country’s agricultural land.¹⁶An impossible ask.

Opportunities and Solutions

Despite the challenges, the SAF market is expanding rapidly. Governments and industry are working together to scale up SAF production, and there are rich incentives to encourage its adoption. At the same time, researchers are busy developing means to improve production efficiency and reduce costs.

As demand swells, what measures can we take to combat greenwashing and fraud in SAF production?

Enhanced transparency: Companies must provide clear information about their environmental practices and sourcing of materials. There needs to be an auditable trail, with factories able to demonstrate the integrity of their inputs. Procedures for tracking SAF’s chain of custody should incorporate blockchain technology to prevent the manipulation of data.
Stricter regulation: Governments need to enforce more stringent rules about the labelling and sourcing of biofuels.
Third-party certification: Independent certifications can help verify the sustainability claims made by companies. For now, there are multiple registries, whereas a single immutable and publicly accessible registry is needed.
Investment in local production: Stepping up local production of feedstocks, as well as widening their range, can reduce reliance on potentially fraudulent imports.

What, though, of carbon credit fraud? Investors certainly need to be more diligent about checking the credentials of sellers, and there is a clear case for raising public awareness of common scams.

But data management is the key, with blockchain technology having a fundamental role to play. A decentralized, unalterable ledger could record the source and validity of every credit. This would bring in a new age of security and transparency in a delicate market.

At the same time, carbon credits must be tied to real-world achievements. For now, carbon credit schemes are built on overestimates of their effectiveness.¹⁷ The market is filled with opportunists but also sellers convinced of the inflated value of what they are offering. It is uncomfortably close to being what the economist George Akerlof famously called a “market for lemons” where there are no reliable signs of quality.

A Call for Accountability

The case of SAF is instructive. While it represents a crucial step towards reducing aviation’s carbon footprint, the industry must urgently address the risk of greenwashing and other forms of fraud. By promoting transparency, enforcing regulations and investing in local production, stakeholders can ensure that SAF contributes effectively to global sustainability goals.

These themes encompass the whole spectrum of green initiatives. To combat fraud, we need to deploy AI-enabled threat monitoring, as well as ensure that channels for whistleblowing are open.

We can also draw a crucial lesson from the carbon market, the fragmented nature of which creates an atmosphere of unreliability. To bolster trust and uphold quality and integrity, we need oversight and analysis, anchored in regulation and rigorous collaboration between the public and private sectors.

1: “The Global Threat of Green Fraud”, FTI Consulting, March 2022.

2: “The Bounce Back Loan Scheme: An Update” National Audit Office, Dec. 3, 2021.

3: The Control of Pollution Act 1974.

4: Council Directive 1999/31/EC on the landfill of waste.

5: “£100m Landfill Tax gap shows ongoing scale of fraud”, ESA, June 2024.

6: “The warring conmen at the heart of a €5bn carbon trading scam”, The Guardian, June 2024.

7: “Carbon Credit fraud causes more than 5 billion euros damage for European Taxpayer”, Europol, December 2009.

8: “Sustainable Aviation Fuel”, U.S. Department of Energy.

9: CORSIA Fact sheet, May 2024.

10: “Sustainable Aviation Fuels”, Office of Energy Efficient & Renewable Energy.

11: “An Introduction to Sustainable Aviation Fuels”, EESI, February 2022.

12: “The Airports Leading The SAF Revolution”, Simple Flying, May 2022.