German biodiesel industry faces collapse over taxes, US subsidies, competition from the South

Three developments are getting mixed into a potentially explosive cocktail that could ruin Germany's biodiesel industry, the world's largest. The businesses that pioneered the large-scale introduction of biodiesel are threatened by taxes, American export-subsidies, and more competitive fuels made from crops grown in the tropics and the subtropics.

First of all, a new set of taxes on biodiesel has made the biofuel less attractive to large fleets. Biodiesel used to be tax-free, but this period ended on August 1, 2006. According to a report [*.pdf/German] by the Bundesamt für Güterverkehr (Federal Agency of Freight Transport), most large transport firms have since then begun to switch back to regular diesel. Sales of biodiesel have decreased 25 percent so far. When later this year the tax on biodiesel is once again upped from 9 to 15 eurocents per liter "the market for locally produced biodiesel will collapse entirely", the report says. The Bundesverband Biogene und Regenerative Kraft- und Treibstoffe (National Union for Biofuels and Renewable Energy) has asked the German Federal Government to intervene.

Secondly, heavily subsidized biodiesel producers from the U.S. have found their way into the European Union. According to the Verbands der Deutschen Biokraftstoffindustrie (Union of the German Biofuel Industry), American producers have exported 200,000 tonnes of biodiesel to the EU since the start of this year. A new export-subsidy scheme facilitates these flows.

Agra-Europe, the EU press service for agricultural matters, shows that the U.S. producers enjoy tax-credits worth 26 eurocents per liter if they mix biodiesel into regular diesel. The scheme is exploited to the maximum in that only a minimal amount petro-diesel is added to biodiesel, so that the subsidy can be obtained. This biodiesel-diesel mix is then exported to Europe. The rule applies to the very small local American biodiesel market, but was in fact created to boost exports to the EU. Because of the fact that the American rule is valid for the domestic market too, the European Commission cannot make a case against these veiled export-subsidies with the World Trade Organisation (WTO):
bioenergy :: biofuels :: energy :: sustainability :: rapeseed :: biodiesel :: fuel tax :: export-subsidy :: WTO :: United States :: Germany ::

The raw materials for the American biodiesel are obtained primarily from South East Asia (palm oil) and Latin America (soybean oil). The European Biodiesel industry associations have filed complaints with the EU Commission and are demanding a complete overview of the entire supply chain and trade flows. In the same context, both the Swedish and Dutch governments have called for a study by the OECD on biodiesel subsidies to show the effects of U.S. export-subsidies. The study should become the basis for litigation (earlier post).

Finally, competition from the developing countries threatens to destabilise the biodiesel market in Europe, which is largely based on the production of the biofuel from locally grown crops such as rapeseed and sunflower. These low-yielding oil crops can in no way compete with much more suitable plants grown in the South, such as jatropha, palm, soybean or pongamia oil. This year, a series of biodiesel plants in Indonesia, Malaysia and Brazil will come online that will produce the biofuel at a fraction of the cost of that produced in Europe. Even with trade barriers on imported biodiesel, the fuels from the South will drive locally produced biodiesel out of the market.

More information:
Bundesverband Biogene und Regenerative Kraft- und Treibstoffe: Zweiter Appell an die Bundeskanzlerin vom 24.05.2007 [*.pdf], the protest letter sent to Chancellor Angela Merkel.

Die Neue Epoche: Immer weniger Lkw fahren mit Bio-Diesel - June 2, 2007.

Weltexpress: Biodiesel-Steuern schrecken Transportunternehmen ab - June 2, 2007.

Biopact: Sweden and Netherlands ask OECD to study unfair biofuel subsidies - May 20, 2007