Last month's scandal over sales of tainted lard from Taiwan has been a source of bitter satisfaction for Hong Kong's handful of biodiesel producers. It's helped shine a spotlight on a warped market that encourages restaurants and catering operations to sell used cooking oil at higher prices to unscrupulous dealers, only to have it return to local kitchens in the form of lard or other oil and fat mixed with "gutter oil". The choice is obvious when recyclers are offering commercial kitchens as much as HK$91 for a 15 kilogram barrel of used cooking oil, says Steve Choi Sau-yim, executive director of biodiesel company Dynamic Progress International. At those prices, no one could run a viable recycling business turning used oil into biodiesel and soap, Choi says; the only way recyclers would be able make money was if the used oil was sold as a commodity for human consumption. "In the past, the price of used oil corresponded with that of diesel. But later, it became pegged to the price of cooking oil. It's a bizarre situation." This is a marked deterioration from 2009, when Dynamic Progress opened its HK$70 million plant in Tuen Mun, he says. Hong Kong has a plethora of restaurants generating used oil and grease. In the past, this was often simply poured into drains, and the Drainage Services Department used to spend tens of millions of dollars every year to clear blocked drains. At the time, it was relatively cheap to collect such used oil from restaurants, Choi says. But without regulation, the collection of waste oil eventually came to be dominated by dubious operators. Of Hong Kong's estimated 40 oil recyclers, only three produce biodiesel - ASB Biodiesel in Tseung Kwai O, the largest operator by far, and Dynamic Progress and Champway Technology in Tuen Mun. Others recyclers simply collect used oil for processing and export. This oil derives from two sources: oil that kitchens feel can no longer be reused, say, after several rounds of deep frying; and the gunk removed from grease traps designed to prevent oily waste water from clogging drains - hence the name gutter oil. Bad publicity following exposés on Taiwan oil suppliers such as Chang Guann has since depressed used-oil prices to about HK$40 per barrel - a fall of more than 50 per cent from previous highs. This means kitchens have less incentive - for now - to sell to collectors, who then repackage the waste oil after basic filtering and export it to cooking oil suppliers elsewhere. Biodiesel companies argue, however, that the government should set up a licensing system if it is to prevent such a dubious trade. There has to be a licensing system that authorises collectors Roberto Vazquez Lucerga It would be far more efficient to control this by requiring all commercial kitchens to dispose of their used oil only to a dozen authorised collectors which meet set standards. Gutter oil is typically turned into two kinds of products, Choi explains: "The first is used oil which is bleached and treated to remove its sour taste. Only restaurants in poor places like Shanxi [province] and Vietnam would buy it; diners can actually taste [the difference]. The second is like the type in the Taiwanese scandal. It gets 'diluted' [with other fats]. Such gutter oil is imported back to Hong Kong for use in food." He adds: "The [oil collection] industry's catchphrase is 'dilution is the solution'." Having been in the used-oil business for decades, Choi says he always takes extra precaution when consuming oil. "I never use any packaged oil like those small packets of sesame oil found with instant noodle packets because you never know how they are processed and where they come from," he says. The discovery of tainted lard last month was particularly hard for Choi to swallow because it hits personally. "Pineapple buns are my favourite food, but the crust - the most delicious part of the bun - was found to contain gutter oil," he says. "I was crushed." No restaurant in Hong Kong would intentionally buy such processed oil, Choi says, but the oil can be resold back to Hong Kong after being blended with regular oil by manufacturers from the mainland or Taiwan. "Some chefs get pocket money so they won't ask the guy collecting the oil what they are going to do with it," says Roberto Vazquez Lucerga, acting chief executive officer of ASB. "There has to be a licensing system that authorises collectors. It's not complicated, the government can do it with legislation." The voluntary registration system adopted by the Environmental Protection Department is simply ineffective, he says. In his native Spain, he adds, there are strict rules governing the movement of used cooking oil, with a clear system of traceability. Restaurants, collectors, biodiesel plants must sign a document called a waste transfer note that is submitted to the authorities to allow them to keep track of where containers of used oil are moved, and to enable officials to conduct checks. Hong Kong has a similar system for chemical waste, and there should be one for waste oil, too, Vazquez Lucerga argues. Kenji Wong Yiu-kwong, operation director of Chamway Technology, says that failure to regulate used oil has also allowed dishonest processors to pollute the environment. Reputable recyclers invest in treatment systems to convert the dirty cooking oil into biodiesel and glycerol - typically it is heated and filtered to remove bits of food and other contaminants before being combined with alcohol and a catalyst such as lye (a process called transesterification). But other operators simply boil the used oil to remove water, and strain out the solid contaminants before dumping the waste. Some of this processed oil is reportedly sold to local food producers making items such as fried fish balls and tofu puffs. As Vazquez Lucerga sees it, the authorities are making a mistake by refusing to classify used cooking oil as waste. "The government says that this oil has commercial value, so it is not considered waste. But this is wrong. A lot of things have commercial value but they are still waste which must be managed properly," he explains. "Spain classifies used oil as non-hazardous waste. You can't let the market decide where the [used] oil ends up as it's a material with potential food, hygiene and environmental impact. If there's no proper monitoring, the same thing will happen again." Biodiesel companies have urged the government for years to set up a licensing system, Wong says. Now even Shanghai has introduced regulations on the handling of used cooking oil, he adds. Since last year, used cooking oil can only be collected by licensed collectors for transfer to the city's two biodiesel companies. Failing to comply would result in fines and non-renewal of restaurant licences. In Hong Kong, 25,000 tonnes of used cooking oil is generated annually. But just 30 per cent of that amount - about 8,000 tonnes - is recovered by the three biodiesel makers. The bulk of the remainder is likely to make its way back into the food chain after being processed and sold to oil suppliers elsewhere, although the Secretary for Food and Health, Dr Ko Wing-man, told Legco last month the government has yet to verify figures on the export of used oil. Meanwhile, the two smaller biodiesel companies have been operating at about one-fifth of capacity because they could not afford to pay the higher prices offered by other recyclers for used cooking oil. At Dynamic Progress, Choi says inconsistent government policy is thwarting the company's green mission to transform locally generated waste into fuel for domestic use. While environmental officials say they support biofuel, the main consideration of the Government Logistics Department, which is responsible for procurement, is the cost. As a result, he says, a contract last year to supply the government with biofuel went to a trading firm that was offering imported fuel that was cheaper. To generate additional income, Dynamic Progress now runs a service helping restaurants improve the efficiency of their gas stoves. But what Choi hopes for is policy support for their green ventures. "In tenders for public projects, the government just needs to insert a clause saying biodiesel must be used; then all the used cooking oil generated in Hong Kong would be used up," he says. Middle East-backed ASB is in far better shape as just 30 per cent of the used oil treated at its plant comes from Hong Kong; the rest is imported from around Southeast Asia. However, Vazquez Lucerga finds little policy support for biodiesel in Hong Kong. The amount used in the government fleet of vehicles is minimal; it adds up to just 150 tonnes per year - half of the amount of biodiesel the ASB plant makes in a day. Only 5 per cent of its biodiesel is sold locally, Vazquez Lucerga says, with the bulk exported to Europe and the mainland. "China wants biodiesel, but Hong Kong does not."