Up to 10% of biofuel exports from the US to Europe are believed to be part of the rogue scheme reaping big profits for agricultural trading firms.
The "splash and dash" scam involves shipping biodiesel from Europe to the US where a dash of fuel is added, allowing traders to claim 11p a litre of US subsidy for the entire cargo. It is then shipped back and sold below domestic prices, undercutting Europe's biofuel industry.
The trade is not illegal, but flouts the spirit of producing green fuel by transporting it needlessly across the Atlantic at a time when campaigners are voicing concern about emissions from global shipping.
The producers' body, the European Biodiesel Board, has uncovered the trade as part of its investigation into why British, German and Spanish producers are in financial trouble at a time when biodiesel prices remain high. The board will call for retaliatory action against the US over subsidies for its leading biofuel.
Biofuels are plant-based oils from crops such as soy and corn. They are expensive to produce but have become relatively cheaper as the price of crude oil has risen to more than $100 a barrel. It is estimated that 10% of the 1m tonnes of biodiesel exported from the US to Europe is part of the splash and dash trade.
Doug Ward, director of a Scottish biofuel company and British representative on the board, said a full report on the impact of US fuels would be finalised within days. It is expected to recommend that the European commission initiate an anti-dumping action against Washington for the subsidy. "We could have sold our product cheaper if we took it over to the US and brought it back," he said. "No one is doing anything illegal, but environmentally it's a disaster," he said. The cheap cost of shipping makes the trade profitable for those involved.
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Ian Waller, a biofuel consultant at the firm FiveBarGate said he visited the southern states of the US last October and spoke to firms about splash and dash.
"You get the subsidy for the act of blending, so people are bringing boats of soy or palm-based biodiesel from Europe and then mixing it with a bit of local biodiesel - or even fossil-fuel diesel - and then shipping it back," he said. US producers worried about the trade also call it the U-boat trade because vessels arrive and then almost immediately return, he said.
Andrew Owens, chief executive of Greenergy, a biofuel supplier part-owned by Tesco, said his company was doing all it could to eliminate the rogue practice. "We are rigorous about our supply chain and careful about where we source bioethanol and biodiesel, but it can always sneak in if we have to buy a one-off cargo in Rotterdam to fill a gap ... We try and avoid splash and dash at all costs," he said.
The European Biodiesel Board has been encouraged to act against subsidised US exports of biofuel because Britain and other European countries have complained that their industries are being destroyed. Producers are concerned the US is flooding the market with subsidised fuel when facilities are standing empty in Germany. D1 Oils, a Teesside-based biofuel business, is considering halving its workforce due to the problems caused by US imports.
A competitor, Biofuels Corporation, was taken off the stock market after suffering its own problems, but BP said it was pressing ahead with a biobutanol plant at Hull in cooperation with Associated British Foods.
In a fortnight Britain will introduce demands that 2.5% of all petrol and diesel is made up of non-carbon fuels. The rules will require companies to provide information about sourcing their biodiesel, potentially cutting out splash and dash.
© 2008 The Guardian