BIOFUELS firms are demanding the British government and the European Union take action to stop American rivals exploiting subsidies to flood the European markets with cut-price fuel.

The Renewable Energy Association, an industry group, contacted the Department for Business Enterprise and Regulatory Reform and European Union trade commissioner Peter Man-delson in recent weeks. The European Biodiesel Board is also lobbying the EU to protest to the US government.

Since the start of the year, American biodiesel groups have flooded the European markets with cheap fuel. The volumes are so large that US imports are thought to account for more than 50% of demand for biodiesel.

European biodiesel groups, including Biofuels Corporation, the UK’s largest producer, and listed group D1 Oils, have warned that the glut of cheap American imports could drive many firms out of business.

American companies have been exploiting federal government subsidies and rebates offered by European countries including Britain. Under the US scheme, biodiesel producers are paid a subsidy of $1 per gallon, or 11p per litre. But the groups can also claim 20p per litre in excise duty rebates by importing biofuels to the UK – in effect “double dipping” on tax relief.

The American fuel, known as B99, is a blend of 99% soya biodiesel and 1% mineral diesel. It is being sold at about $860 (£420) per tonne, far cheaper than the $1,114 price of raw rapeseed oil before it has been refined to create biodiesel. Refining typically costs $125 a tonne.

The European biofuels industry is demanding the EU looks at measures including placing duties on US imports. In America, Congress is considering a bill that would only allow firms to claim the subsidy on biofuels used in the country. However, it is feared the bill could take more than a year to become law.

According to a recent report by accountants Ernst & Young, US biofuel imports to Europe are expected to reach more than 500,000 tonnes by the end of this year. In Germany, some biodiesel refiners have cut their output by 50%, though there are fears this could lead to an 80% fall by the end of the year.

Last month, Biofuels Corporation delisted from AIM after its bank, Barclays, forced it to accept a debt for equity swap. Biofuels Corporation was hit by production problems at its Tees-side plant, higher raw material costs and competition. Its shares floated at 75p in 2004, peaked at 300p in 2005, but plummeted to just 1½p when it delisted.

Elliott Mannis, chief executive of D1 Oils, said: “This is a nascent industry that is being fundamentally damaged. Bluntly, there is a danger that if this goes on unchecked it could be destroyed.”

Clare Wenner, at the Renewable Energy Association, said: “The UK government has raised this with the commission. This issue needs to be resolved or companies could go out of business.”

D1 is less vulnerable than some rivals since refining is only part of its business. It also trades biofuels and is planting jatropha trees, which can be grown in tough desert conditions and produce high quantities of oil.

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