European biodiesel participants are looking at a changed market in 2025 as new trade barriers, increasing mandates and a reset of the German greenhouse gas (GHG) savings quota support expectations of improved margins after a sustained squeeze.
But continued uncertainty over what a second Donald Trump US presidency will mean for global biofuels markets has stymied some participants and could reshape trade flows again.
Just like the old days?
Recent policy changes affecting European biofuels are seemingly intended to return the biodiesel market to the period before the rapid increase in imports from China in early 2023, which weighed on prices. But the 2025 market also faces higher mandates and probably higher feedstock costs.
In August, the EU imposed provisional anti-dumping duties on imports of biodiesel and hydrotreated vegetable oil (HVO) from China, and definitive anti-dumping duties of 11.1-36.6pc are due to come into force by February. The UK is currently conducting its own anti-dumping investigation into the same products from China, with a provisional recommendation expected by March and final recommendation in August.
The duties have significantly slowed imports from China, with Chinese customs data showing biodiesel exports to the EU in August to October at 98,822t, down by 73pc from the same period in 2023. Low demand and high starting stocks continued to weigh on European prices for several months before supply levels tightened because of the drop in imports.
Support for some European producers has not completely materialised, with high crop feedstock prices continuing to pressure production margins. European biodiesel supply levels have been further pressured by crop-based producers being unable to secure positive margins in the spot and forward markets, and cutting production, which may persist in 2025.
China recently announced the cancellation of its UCO export tax rebate from 1 December, which could raise waste feedstock costs by 13pc from the major exporter. Indonesia also imposed export restrictions on palm oil mill effluent (Pome) oil, supporting advanced feedstock prices.
The German cabinet approved a law in November removing the option for companies to carry over excess GHG quota certificates into 2025 and 2026, starting the market from scratch in 2025. In 2023, obligated companies exceeded their quota requirements by around 8mn t of CO2 equivalent, suppressing physical biofuel demand throughout 2024 as tickets were the cheaper option.
With the change, Germany is expected to return to an Advanced Fame-focused market. Once the advanced fuel sub-mandate of 0.7pc by energy content has been met, advanced biofuels used towards the GHG quota can be double counted without a cap.
When anti-dumping duties were announced, participants expected Chinese advanced producers to switch to feedstock pre-treatment and export to advanced biodiesel producers in Europe or Latin America.
But the anticipated ramp-up in production outside China has not materialised, and now it seems that strong German demand may support the arbitrage from China reopening despite the duties imposed.
The US outlook
Across the Atlantic, a lack of clarity about Trump policies has stalled the market. Most uncertainty hinges on two points — the planned transition from the blender's tax credit to the Inflation Reduction Act's 45Z producer tax credit and Trump's plans to impose import tariffs on various countries.
The blender's tax credit is due to expire at the end of this year and be replaced by a production tax credit based on carbon intensity, although official guidance has not yet been published.
Exports of finished biofuels to the US would no longer receive the same tax benefit as domestic production, and flows could switch to primarily feedstocks, cutting off one option for European producers to recover thin domestic margins during low demand periods. It is also not clear if Trump will support 45Z or if the blender's tax credit will be extended following industry pressure.
If Trump imposes tariffs on Chinese UCO imports, the door could open for European feedstocks and US biofuels could become more expensive. Currently, the UK imports large volumes of HVO from the US at a discount to European HVO to meet mandates — if that arbitrage closes, the UK would probably return to being a Ucome-focused market.
