U.S. biodiesel producers — already suffering from low oil prices, weak domestic demand and a delayed Environmental Protection Agency mandate — were hit Tuesday with a five-year tariff on exports to Europe.
The European Union imposed a provisional tariff on imports of U.S.-made biodiesel back in March in response to complaints the subsidized and discounted American product was damaging the industry. Biodiesel is made from vegetable oil or animal fats to be used in diesel engines. The product does not contain petroleum, although it can be blended with petroleum diesel.
The European Biodiesel Board charged that U.S. biodiesel, which benefits from up to $1 per gallon tax credit, was sold in the European market at a discount, effectively undercutting local producers. The European Commission, the executive branch of the EU, outlined the investigation in lengthy report.
The EU’s extension of the tariffs weren’t entirely surprising, said GreenHunter Energy spokesman Jack Zedlitz.
“Still, considering that 85 percent of U.S. biodiesel went to Europe, it hass created an extremely grave condition for the industry,” said Zedlitz.
The U.S.-based National Biodiesel Board was equally dismayed by the decision. EU companies were not hurt by U.S. competition, but by bad business models; high feedstock costs and detrimental EU member state policy, NBB Vice President of Federal Affairs Manning Feraci argued in a statement released Tuesday.
The five-year tariff essentially shuts off U.S. biodiesel producers from a one-time moneymaking market. Low oil prices and weak demand have placed further burdens on the industry, causing many producers to idle plants.
GreenHunter Energy has idled its refinery along the Houston Ship Channel since February. The massive biodiesel refinery — considered the largest in the U.S. and capable of producing 105 million gallons a year — may be sold. The company negotiated last month a new amendment on its credit agreement with WestLB, which gives it until Nov. 15 to make payments on a $38.5 million loan and $10 million credit line.
GreenHunter has hired an investment bank to look for a potential buyer, a strategic partner, alternative financing or new equity capital in hopes of bringing the refinery back on line.
There has been interest in forming strategic partnerships, said Zedlitz, stopping short of providing further details or identifying the interested parties.
The U.S. biodiesel industry also is anxiously awaiting the EPA’s decision on proposed changes to the 2007 Renewable Fuels Standard, known as RFS-2, which requires the use of 500 million gallons of biomass-based diesel in 2009. The EPA recently extended the public comment period on RFS-2 by 60 days.
The industry will experience more idling plants, bankruptcies and rapid consolidation in the U.S. if the EPA does not issue the biodiesel mandate, Zedlitz said. In the end, major feedstock companies including Cargill and Archer Daniels Midland could benefit.
“With no mandated consumption of biodiesel, you’ll see those first-generation assets bought by those who control feedstocks,” he said. “Feedstocks are 75 percent to 85 percent of the cost for biodiesel producers so companies in control of feedstocks would have the upper hand.”
Under a federal mandate, biodiesel refineries like GreenHunter and beleaugered Imperium Renewables, which shuttered its 100-million-gallon-a-year plant, could manage to survive and even thrive if oil prices also rebound.