The Chinese resort island of Hainan has allegedly been at the centre of a green fuel fraud, Bloomberg reported.

Best known for its sandy beaches and luxury hotels, the tropical island off southern China has emerged as a major shipper of Chinese biodiesel to the European Union (EU), the 5 May report said.

Although accounting for nearly a third of the country’s biodiesel exports, the island has no capacity to convert used cooking oil (UCO) – the most obviously compliant feedstock – into biodiesel, according to the report.

Sources claimed that the island could be serving as a trans-shipment hub, where fuels had been mixed with cheaper feedstock, then mislabelled to qualify for European green incentives, Bloomberg wrote.

Speaking on condition of anonymity, sources said they were concerned about the consequences of potentially fraudulent biodiesel exports to Europe, including greater scrutiny and quality inspections, the report said.

In addition, if punitive tariffs were imposed on Chinese goods following any findings of dumping or fraud, they said the entire industry would be affected.

Bloomberg said it had called the Hainan provincial government’s department of commerce but there had been no response.

Hainan-registered companies exported 498,000 tonnes of biodiesel last year, making up 28% of China’s total outbound shipments, according to customs data compiled by Bloomberg.

The island’s share of exports increased to 31% in the first quarter of this year, with volumes at 205,000 tonnes. Almost all cargoes were shipped to the Netherlands, a large consumer market and home to major European ports.

Meanwhile, Chinese imports of palm waste and palm-based biofuel from Indonesia and Malaysia – the world’s leading palm oil suppliers – had surged, the report said.

According to Chinese customs data, Hainan-registered companies handled more than 60% of the country’s biodiesel imports in the first three months of this year, with most of the total from Indonesia and Malaysia.

China’s biodiesel production totalled 2.4bn litres last year – up by a third compared to 2021 – due to a surge in export demand, the US Department of Agriculture estimated. Facilities are located mainly in Shandong, Guangdong, Shaanxi, and Jiangsu.

In April, the International Sustainability & Carbon Certification (ISCC) – which provides certification for materials and fuels, including details of compliance with EU rules – announced it would be introducing unannounced integrity audits at processing units in China and Singapore and increasing auditor capacity in Asia, Bloomberg wrote.