Europe threatens trade war over US biodiesel subsidies
Sunday, 29 April 2007
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A transatlantic trade war is looming over a US biodiesel export credit that is driving UK manufacturers of the green fuel out of business.
The EU Trade Commissioner Peter Mandelson is preparing to wade into the row, which could result in a World Trade Organisation investigation and retaliatory tariffs being imposed on American biodiesel exported to Europe.
The subsidy allows US exporters to undercut European rivals by at least a quarter, forcing many to cut production and sell at a loss.
The US "B99" subsidy is controversial because it benefits exporters. In most of Europe, tax breaks are available only at the point of sale.
Commodity traders are also exploiting a loophole in the subsidy system that is making its impact even more damaging.
The perfectly legal trick - coined "splash and dash" by the industry - also makes a mockery of the purpose of biofuels, which is to reduce the use of fossil fuels and thereby cut carbon emissions.
Traders are buying biodiesel on the European market in Rotterdam and shipping it to the US. There, conventional gasoline is added to the biodiesel blend - or "splashed with gas" - to qualify for the subsidy. Then the cargo is shipped back - or "dashes" - to Europe and resold at a lower price.
Europe is the world's largest biodiesel market, one that is growing rapidly. Most biofuel companies are reluctant to exploit the loophole themselves for environmental reasons because shipping the biodiesel across the Atlantic twice results in unnecessary carbon emissions.
Sean Sutcliffe, chief executive of the AIM-listed manufacturer Biofuels Corporation, said: "It's well known that the market is challenging at the moment. This is exacerbating it. It puts a question mark over future investment in the sector. Production is being cut back as a result."
Terry de Winne, a director of biodiesel manufacturer Biofuels Northern Ireland, said: "We are being screwed on price. We are already selling virtually at a loss."
Last month, the European Biodiesel Board (EBB), a trade association, wrote to Mr Mandelson expressing its "strong concern" over the subsidy.
US lawmakers are understood to be preparing to close the "splash and dash" loophole. The EBB argues this would still leave the market distorted, as US biodiesel manufacturers would continue to qualify for subsidies.
The EBB will soon submit a formal complaint to the EU, which Mr Mandelson is preparing to review.
