Table of contents
There is one statistic which, on its own, should be enough to steer the debate: in Italy, over 40% of biofuels are derived from waste and residues. Not agricultural raw materials, but by-products. This is the model on which a significant part of the transport transition is based. The figure comes from the GSE and has been regarded as good news for years.
It is, at least in theory.
Because in practice, when waste becomes so central and so profitable, the simplest question also becomes the most uncomfortable one: how much of what we call ‘waste’ is actually waste?
SourceMaterial’s investigation into POME — the liquid by-product of palm oil processing — does not directly accuse major European companies. It does something more significant: it shows just how easy it is, within a global supply chain, to lose control over what one is buying. And it suggests that the problem is not isolated, but systemic.
A global supply chain built on trust
POME originates in the oil mills of South-East Asia. It is a liquid by-product that is difficult to store and transport, and has little intrinsic value. For years, it has been seen more as an environmental problem than a resource.
The balance shifts when it enters the European biofuel supply chain. Here, POME becomes an ‘advanced feedstock’, benefits from regulatory incentives and contributes to climate targets. In some cases, it is worth almost as much — or more — than the main product from which it is derived.
It is this leap in value that is transforming the supply chain.
Between the point of origin and the destination, there are traders, intermediaries, logistics operators and certifiers. The product crosses borders and passes through different regulatory systems, accompanied by documentation certifying its nature and sustainability. At each stage, the checks are purely formal: the documents are verified for accuracy, but not whether the contents actually match what is declared.
The system that makes all this possible is certification, specifically the ISCC standard. It is a complex framework, based on regular audits and inspections, which has enabled the advanced biofuels market to grow rapidly.
But it is also a system designed to manage compliance, not uncertainty.
When volumes are consistent and demand is stable, it works. When demand grows rapidly — as has been the case in recent years — tensions arise. The reason is simple: the actual supply of waste is limited, whilst incentives encourage increased use of it.
A study by Transport & Environment has shown that POME consumption in Europe could be almost double the estimated global supply. This is not evidence of widespread fraud, but it is an indicator of an imbalance. And in global markets, imbalances always give rise to grey areas.
The hidden risk in business models
This trend is not confined to the agricultural sector. It is directly reflected in the business models of the major energy companies.
Companies such as Eni and Neste have invested heavily in advanced biofuels, converting refineries and establishing global supply chains. The aim is clear: to use waste and residues to produce low-emission fuels, in line with European policies.
It is a consistent strategy and, so far, an effective one.
However, it relies on a factor that companies do not have complete control over: the quality of the upstream information. In a supply chain such as that of POME, the end producer depends on a long chain of stakeholders and a certification system which, by its very nature, operates on the basis of documentation.
This creates a different kind of risk from traditional ones.
It is neither an operational risk nor a technological risk. It is an information risk. If the data on which the certification is based is incomplete or inaccurate, the entire compliance system becomes less robust. And with it, so too do companies’ financial incentives and ESG positioning.
This issue is particularly relevant because biofuels produced from waste are strongly supported by public policy. Through the RED II Directive, the European Commission has established a system of incentives that rewards these solutions. In some cases, the contribution towards renewable energy targets is counted multiple times, thereby increasing the economic value of the feedstock.
When incentives, regulation and demand come together, the market expands rapidly. But if the information base is not equally robust, there is a risk that growth will be more fragile than it appears.
And this has direct implications: reputation, compliance and asset value.
From certification to verification: where new opportunities arise
The POME case highlights a wider contradiction concerning the way sustainability is managed in global markets.
In recent years, the system has been based on a simple principle: if it is certified, it is sustainable. But this approach assumes that certification is capable of accurately reflecting the physical reality of supply chains.
When this correlation weakens, a structural problem emerges.
The same phenomenon is being observed in other areas. In the carbon credit market, various investigations and academic studies have shown that some certified projects do not deliver the claimed emissions reductions. Here too, the problem lies not with the underlying concept, but with the gap between claims and verification.
In the case of biofuels, this gap is exacerbated by the complexity of global supply chains. Academic studies published on platforms such as ScienceDirect highlight how POME exhibits significant variability and is difficult to standardise, making monitoring along the supply chain even more complex.
All of this leads to a practical conclusion: sustainability can no longer be managed solely as a certification scheme. It must become a data-driven system.
This means moving from periodic checks to continuous monitoring, from static documents to dynamic information, and from delegated trust to direct verifiability. Technologies such as blockchain, IoT sensors and data integration platforms are often cited as possible solutions, but the point is not the individual technology. It is the overall infrastructure.
And this is where a market opportunity arises.
Companies that can offer genuine traceability — not just certified traceability — will be able to set themselves apart significantly. At the same time, start-ups and new entrants can develop solutions to bridge the information gap that currently characterises these supply chains.
It’s not just about compliance. It’s about building trust in markets where trust has become a critical asset.
In this respect, POME is a case in point. It highlights the limitations of a system that worked well in the early stages of the transition but now needs to evolve. It also suggests that the next phase will be driven not only by new energy technologies, but by new management capabilities.
Because in the first phase, the winners were those who were able to produce alternatives to fossil fuels. In the second phase, the winners will increasingly be those who can demonstrate that those alternatives are truly sustainable. (photo by IKRAM ULLAH on Unsplash)
ALL RIGHTS RESERVED ©