EU ELECTIONS: Key challenges ahead create uncertain path for Europe's biodiesel producers

With elections to the European Union underway, Fastmarkets spoke to major industry groups representing ethanol and biodiesel to understand their expectations for the bloc’s incoming governments.

Efforts to reduce emissions have been caught up in populist politics at a time when the EU’s governments have laid out a clear path to decarbonize the bloc, with aims to reduce emissions by 55% versus the 1990 baseline by 2030 and striving to be net zero by 2050.

European Waste-based and Advanced Biofuels Association's (EWABA) director for communications and analysis Leonidas Kanonis shared with Fastmarkets his thoughts on the primary challenges, expectations and outlook for the biodiesel complex.

EU elections and policy
The elections come just as the European biodiesel rides what should be a crest of expectation – buoyed by efforts to decarbonize the heavy truck and maritime sector using new generation biodiesels and in the vanguard of solutions for aviation.

Perhaps more than any other sector, the expectations around sustainable aviation fuels (SAF) are driving more interest in waste-based biofuels, with the EU committing to a roadmap that will deliver substantial mandates by 2050.

Starting next year with a 2% mandate, all intra-EU flights and flights originating from an EU airport are expected to use SAF in varying blends through to 2050, when 70% of the supply must be SAF.

While that is great news for the sector, challenges are emerging in an aggressive trans-Atlantic competitor, with the US gearing up to meet its own SAF grand challenge amid increasingly intense competition and scrutiny over the likely supply of feedstocks and their waste-based credentials.

But in hydroprocessed esters and fatty acids (HEFA), the industry already has a genuine claimant to being the single most viable supplier of SAF and investment is pouring in to boost the volumes as expectations mount.

“The European elections will be crucial, not just for biofuels policy but for the wider climate policy direction of the European Union in the next 5 years,” Kanonis told Fastmarkets.

The challenge is largely two-fold, stemming from pushback from some political parties that question why decarbonization targets need to be so ambitious and railing against their cost, while leaving the bloc vulnerable to a dependence on imports.

“Prior to committing to even more ambitious packages, EWABA believes that the EU should ensure that energy security and energy poverty are not compromised like they did when Russia invaded Ukraine,” he said, adding that progress should not be at any cost.

While energy transition should not slow down, “the new European Commission should make fast track impact assessments to make certain that the path we have chosen will strengthen energy transition [and] European competitiveness,” he said.

The landscape of legislation already introduced by the European Union – from ReFuelEU in aviation, FuelEU in the maritime space, revisiting feedstocks for the third iteration of the Renewable Energy Directive (REDIII) and reducing CO2 standards for trucks have created sharp competition for relatively limited feedstocks.

A more holistic approach would better manage some of the competition and could help pioneer more nascent options to complement the existing range of options, with the provision of sufficient incentives also introduced.
A priority should be the passing of a new Implementing Act, to either increase significantly or completely discard the 1.7% cap on the use of certain waste-based biofuels, according to EWABA.

The cap, introduced in part to try and curb the incentive for fraud among feedstocks, governs the use of approved feedstocks under the EU’s influential RED and the critical Annex IX, Part B that defines what is acceptable as a waste-based feedstock.

The cap “limits the real climate contribution of waste-based biofuels in the European efforts to reduce transport emissions” and has been a point of contention that many in the sector argue limits the availability of feedstocks.

The EWABA has also called for the incoming parliament to revisit the CO2 standards that were adopted in May and apply the same 2035 deadline to sales of trucks powered by an internal combustion engine (ICE).

“Achieving such a large-scale electrification poses major challenges in terms of efficient and safe transportation for goods and services across the continent,” Kanonis said, adding that it also compromises the bloc's energy security through over-reliance on Chinese supply, where much of the current supply of lithium, nickel, and cobalt originates from.

Kanonis also raised the point of whether the approach is "the truly sustainable and efficient way ahead for the European climate, industry and economy”.
And decisions should not hinder investment certainty but only “finetune the legislation to make it more progressive, realistic and market friendly.”

The health of the biodiesel industry
Turning to the industry, Kanonis characterized 2023 as a “very bizarre year” for the sector, with pressure placed on the European sector by the influx of China sourced waste-based biodiesels arriving in the bloc.

“These volumes were defined as advanced biodiesel but in most cases, they were not and led to a major decline of biodiesel prices in Europe, leading to major losses in margins for producers,” he said.

The impact stirred the EU into action, after industry players filed an anti-dumping investigation aimed at stopping undercutting by Chinese players but the ambitious SAF mandates have pressured producer mandates.130293

“The expected SAF blending mandate has pushed prices for feedstocks higher, whilst biodiesel prices are still low, and in this way [it has pushed] biodiesel producers out of business,” Kanonis said, warning that many had run in negative margins.

“This situation cannot continue for much longer,” he said.

Even so, EWABA’s sector produced 2.12 million tonnes of advanced, waste-based biodiesel in 2023, largely on par with 2022, but the stability in those figures were largely owed to the incorporation of new members to the association, rather than adequate market conditions. 

That will mean the new governing bodies of the European Union will need to prioritize the bloc’s sector in the face of significant challenges.

But the global Achilles heel remains the feedstock complex, with competition on that front only intensifying, forcing the European sector into greater diversification.

Where EWABA members primarily relied on used cooking oil (UCO) and animal fats, members are now using between 15 to 20 different feedstocks to produce biodiesel, with UCO and categories 1 and 2 tallow now forming less than 50% of total feedstock.

Twin anti-dumping investigations against Chinese and Argentinian biodiesel imports has also brought some relief and there are signs that biodiesel premiums are starting to recover, according to Fastmarkets data.

Premiums for used cooking oil-based UCOME started 2023 at $815 per tonne over the ICE gasoil contract, slumping to just $380 per tonne by late-October, and then falling further to $340 per tonne in February 2024.

Since then, with flows into the European region having slowed, levels have pushed back to reach $650 per tonne by late-May, almost double the lowest point in February, according to Fastmarkets data.

Sustainable aviation fuel
Just as with ethanol, the potential that SAF offers the biofuels space is a mixed blessing - one which provides clear scope for investment and expansion, while also sharpening the competition for feedstocks that are currently being heavily engaged in production of biodiesels.

Beyond aviation, for the future and the parliament that will emerge after the elections, EWABA sees the outlook for the wider biodiesel sector as “bright” but in need of greater clarity and simplicity for the regulatory landscape.

Decarbonization in the maritime, heavy duty sector, rail, agriculture and heating sectors mean there is plenty of scope to grow but current legislation “creates even more questions and does not answer where fuels, feedstocks and resources will come from”, according to Kanonis.

To this end, the aviation, road and maritime sectors will likely need to share the mix of available waste-based biofuels as they lack alternatives and electrification will be crucial for the transport sector, according to EWABA.

“But it cannot carry all the weight by itself...Renewable fuels, especially the ones that are waste-derived, have a major part to play in the future European energy mix," Kanonis said.

The 2024 European elections span June 6-9 and give all voters in all EU member states the ability to vote in their local member of the European parliament (MEP) for a five-year term.

All 720 seats in the parliament are up for election, with the body being the main vehicle for the drafting of legislation initiated by the European Commission and covering everything from developing the bloc’s economy through to fighting climate change.