There's a lot of talk in Europe right now about reduced greenhouse gas emissions and the push for more environmentally-friendly fuel sources. So why is a major biofuel plant on Teesside closing for around four months, citing depressed market conditions? John Hill looks at the challenges and opportunities facing the European biofuel market as it tries to fight its corner.

THEY’RE calling it a hiccup but it certainly felt more like a jab in the ribs last week.

Two years since it opened its plant on Teesside, biofuel provider Ensus announced the facility will be closing for around four months due to the state of the market. It’s only been just over three years since One North East’s energy and environment manager Ray Thompson said the region had a chance to become a major European hub for biofuels.

So is this major biofuels player just hibernating, or should we be worried?

John Brady, senior biofuels project manager at the North East Process Industries Cluster (Nepic), is convinced it’s the former, but that there are issues that need to be ironed out to help the sector succeed.

“This is a hiccup,” he says. “Through Ensus we’ve seen major investment in the Tees Valley. They’re here, they’re operating and they’re investing.

“I hear a lot about the green economy. It’s here in the North East of England. It’s alive and kicking. We’re building a supply chain and a critical mass of investment.

“Ensus is very much part of this landscape, and there are a lot of other activities that are either here or going to be here. We must not sit on our laurels though, as there’s an awful lot more to do.”

First of all, European biofuels producers want something to be done about a fuel called Alcoline. Alcoline – otherwise known as E90 – consists of ethanol mixed with 10% gasoline, and is specifically designed by USA and Brazilian exporters for the EU market.

The problem lies with the fact that because the ethanol is mixed in the USA, it benefits from the VEETC blending tax credit of $45 a gallon, and then passes through customs with a very low import duty. As a result, exporters are able to undercut producers within the EU itself.

According to European renewable ethanol association ePure, imports of Alcoline into the UK have risen from 72,000 tonnes in 2009 to 326,000 in 2010. Total Alcoline imports into the EU in 2010 amounted to about 500,000 tonnes, around 10% of EU ethanol consumption.

EPure says the practice serves to unfairly hit the EU market and threaten the profitability of EU investments in the fuel ethanol sector, while the use of this loophole has also resulted in a loss of more than £40m in unpaid import duties in 2010.

Industry players have compared it to the “splash and dash” practice of diverting biodiesel through America and adding a drop of diesel to take advantage of public subsidies. The loophole, which was popular a few years ago, was cited as the reason for the closure of D1 Oils operations in Middlesbrough in 2008.

Ensus, on the other hand, has pledged it remains committed to operating and growing in Europe, and expects the market to improve as implementation of the regulatory framework for biofuels catches up with the agreed EU legislation.

John Seymour, of regional biofuels umbrella group North East Biofuels, says: “You can’t just dump a product like this here and undercut EU producers. It became apparent several months ago that this was happening. I’m sure it will be stopped and then we can get back to normal production again. But until then it will have a negative impact on EU producers, and that’s what’s happening at the moment.”

However, biofuels producers are also keen to see a little consistency from lawmakers in Britain itself. This week, the UK pledged to halve greenhouse gas emissions from 1990 in the latest carbon budget, a move which it says will result in greater opportunities for nuclear and renewable industries. However, Nepic’s John Brady points out that targets haven’t been consistent in the past.

He says: “In 2008, the government announced the Renewable Transport Fuel Obligation, which stated that transport fuels should contain a 2.5% biocomponent, with that target rising to 5% by 2010. That was a significant opportunity for investment in renewable energy and biofuel.

“However, within a few months of this being brought in, the UK government ordered a review that became known as the Gallagher review. The biocomponent level was maintained, but the target was scaled back to 2013/14. That sort of move has an impact on investment and market demand. You go from everything being rosy in the garden to interest and investment being scaled back.

“We need to have a consistent policy from the UK government. Inconsistency doesn’t help attract finance, especially since it’s still difficult out there.”