New German and Italian legislation targeting tallow-based biodiesel (TME) use and supply chains are likely to attract greater imports into both countries.
In a draft law published last week, the German government proposed to add biofuels produced from animal fats and oils to the list of renewable fuels that can be counted towards the country's greenhouse gas (GHG) emission reduction obligation.
If adopted, this would allow German fuel suppliers to use biodiesel produced from tallow category 1 and 2 to achieve their blending mandate, but it would not introduce the option of double counting. Biodiesel made from tallow category 3 will not go toward the GHG savings obligation.
Berlin estimates that around 95pc of tallow category 1 and 2 in Germany is used to produce TME for export, meaning that the proposals will not interfere with the domestic market. But including tallow category 3, which is mainly used in the petrochemical and animal feed sectors, could promote the use of feedstocks such as palm oil that may have higher GHG emissions.
The opening of the German market for the product could reduce German TME exports. And other European suppliers could be incentivised to sell into Germany, where biodiesel prices are likely to be underpinned by its strict GHG mandate. But these changes may be limited by Berlin's 1.9pc cap on the energy share of waste-based biofuels, which includes TME, that can be counted towards the GHG quota.
Italy will introduce double counting for biofuels in November. Then, any supplier looking to sell double counting biodiesel into the Italian market will have to ensure its entire supply chain — from feedstocks to end-product — is certified with the Italian National Scheme (INS). Failure to do so will mean that the biodiesel will not be eligible for double counting.
This legislation is particularly relevant for the tallow and TME markets, because the INS certification system was already in place for used cooking oil (UCO) — the other double counting waste feedstock according to EU regulations — supplied into the Italian market.
Maintaining INS-certified tallow and TME separate from non-certified feedstocks and biodiesel across the whole supply chain will probably raise costs for suppliers, and this is likely to be reflected in pricing. Italian TME price could rise to a €50-60/t premium compared with fob ARA values from November.
The Italian and German legislations should support European TME prices, with the usual premium of used cooking oil-based biodiesel (Ucome) to TME likely to narrow.
