Tariffs cause shift to domestic, other markets

By Anna Austin | May 11, 2009
Since the European Commission moved forward with its proposal to impose provisional tariffs on biodiesel imported from the U.S., it has been widely speculated that some U.S. producers and marketers will be in serious trouble.

The European Biodiesel Board has long-argued that the $1-per-gallon federal blending credit has given an unfair advantage to the "splash-and-dashers," or U.S producers that were importing B100 from outside the country and then blending it with a miniscule amount of petroleum diesel in order to make the fuel eligible for the blender's credit before it's shipped elsewhere where the fuel may be eligible for additional subsidies. The EBB said this has put the European biodiesel industry at a considerable disadvantage for more than two years since U.S. biodiesel has been sold in the European market at a substantial discount, hence creating a price-setting competition to progressively disrupt the margins of European biodiesel producers, leading a number of them to stop or significantly slow production, or even to go bankrupt.

The tariffs, effective March 13, require U.S. biodiesel producers to pay between 211.20 and 237 (approximately $270 to $300) per metric ton for the anti-subsidy duties. The anti-dumping measures pile on an additional charge of between 23.60 and 208.20 (approximately $30 to $265) per metric ton.

The tariffs have become the blame for layoffs and lowered production at some U.S. biodiesel plants, but from another perspective, they could have a positive aftershock on other countries as producers look to focus on alternative markets.

When Innovation Fuels Inc. shipped its first 15,000 barrels (630,000 gallons) of biodiesel from New York Harbor to Rotterdam, The Netherlands, in August 2008, CEO John Fox was optimistic about extending the company's global reach. "This (the shipment) shows our ability to reach customers internationally, not just domestically, and is done so with positive margins," he told Biodiesel Magazine.

In Fox's view, the EU customers are the biggest victims of the tariffs, not U.S. biodiesel producers. "And actually, since the tariffs [were enacted], the local market and the other international markets have heated up, so unfortunately, the tariffs-as they usually do-only harm the European customer," he said.

Fox said EU customers are seeing higher pricing now that the tariffs are in place. "With us, we have a [40 MMgy production facility] in New York Harbor that allows us to serve different markets and from an international standpoint, what we're seeing is a really strong demand for biodiesel in other nations-in Southeast Asia, even into the Middle East."

Although unable to disclose how much biodiesel Innovation Fuels exports, Fox said that a majority of the company's fuel is still going overseas, even though it has an increasingly large customer base in the U.S. The company recently became the first biodiesel manufacturer in the Northeast to receive BQ-9000 accreditation in both areas of biodiesel production and marketing.

The European Commission has indicated that there is a definite possibility the tariffs will be extended for five years, a decision which is expected to be made in July. If extended, Fox said he believes Innovation Fuels will probably see even less of its product going to the EU. "EU prices are going higher and higher because it's a very captive market, and there's not enough supply there to support their mandates," Fox said. "The issue here is that when you break supply chains, it's difficult to get those back working again without significant cost issues. As we redirect our product into the U.S., which is good for us-to serve more of a local market-other international sources will also be less likely to serve our European counterparts."

As Innovation Fuels and other producers shift focus to domestic and alternative markets, Fox's sentiment regarding U.S. mandates echoes that of many others. "I think that one of the things we need here in the U.S. is increasing mandates on biodiesel, and we are actually starting to see a very strong demand due to mandates that have taken effect in states such as Pennsylvania and Massachusetts," Fox said. Massachusetts requires all home heating fuel and diesel to be a B2 blend in 2010 and B5 by 2013, and in January, Pennsylvania signed onto a mandate, which will require a B2 blend at their pumps in 2010.

"It has created a burgeoning market here, and we are still able to sell biodiesel that's competitive to diesel fuel," said Fox. "We'd like to see more mandates here, because ultimately we'd like to keep our product here. It makes a lot more sense to produce it here and use it in the local environment, and it's much more cost-competitive from a life-cycle standpoint than to ship it overseas. Unfortunately, the U.S. government has been very slow to act."
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