$5 billion German scandal is bankrupting green companies

In January, as a scandal over the domestic carbon market emerged in Germany, oil and gas giant Shell received a message on its online whistleblower portal: a Chinese oilfield emissions reduction heating project the company was involved in turned out to be a chicken farm in reality.

“I hope you will do your due diligence and investigate the allegations,” the complaint, a copy of which was shared with Semafor, said. The document also referenced at least three other similar cases.

Now, the company whose CEO filed the anonymous whistleblower complaint has declared itself bankrupt. It was, it says, the victim of a multibillion-euro transcontinental scandal that has plagued Germany for months: biofuel suppliers allege that dozens of emissions-reduction projects abroad have been falsified or their success exaggerated. The controversy has drawn criticism from German regulators and major energy companies while undermining already shaky confidence in efforts to reduce emissions from the power sector.

“How can fraud like this, on such a scale, happen,” Zoltan Elek, the whistleblower whose company Landwärme supplies biomethane to major companies including Shell, said in an interview. “This is not small-scale, someone selling you a bad used car.”

German authorities have begun to take action in recent weeks: The federal environment minister said last month that the country may be dealing with “a case of serious environmental crime.” In July, officials suspended all emissions-reduction projects in China and are not accepting new ones anywhere. One senior government official has been suspended, German broadcaster ZDF reported, the environmental agency has filed a criminal complaint with the Berlin public prosecutor’s office, and police have searched the offices of accounting firms responsible for verifying projects.

For Elek, that action comes too little and too late. Shell in particular, he says, has not done enough to investigate the scandal, to take action by firing or disciplining workers, and to make amends, which he believes should include financial compensation for companies like his that have suffered reduced demand for its products. Frustrated by the response — or lack thereof — from major companies and German authorities, he says he is discussing working with others in the industry to increase political pressure and demand that officials more aggressively investigate the legitimacy of the projects underlying the loans. An industry lobby group says inadequate verification by regulators and auditors has led to a loss of revenue of €4.5 billion, or about $5 billion.

“It is possibly one of the biggest fraud cases in the German oil industry,” ZDF reported.

Shell declined to answer specific questions about the whistleblower complaint or any of the projects it was involved in. A Shell spokeswoman said that “the Federal Environment Agency is currently investigating the allegations mentioned” and that the company “always acts in accordance with the relevant laws and regulations.” She said that Shell “conducts its own due diligence on a voluntary basis,” but did not provide details about how or when due diligence is conducted. The company that oversaw the project, which Landwärme identified as a chicken farm, meanwhile denied any improper conduct and told Die Welt that a typographical error was the cause of the incorrect coordinates being provided.