Fraud Flares in Europe While U.S. Policy Stalls: Biofuel Markets Split

European biodiesel traders are digesting a double blow: new scrutiny from Brussels and a shifting arbitrage matrix for waste-based feedstocks. The European Commission has echoed concerns raised by the EBB over the legitimacy of some biofuel imports — particularly from China — suggesting regulatory tightening is imminent. In its 18 July statement (https://energy.ec.europa.eu/news/commission-concludes-examination-potential-chinese-biofuel-imports-fraud-2025-07-18_en), the Commission admitted that serious doubts exist around fraudulent declarations but stopped short of announcing concrete actions. This reinforces expectations of enhanced customs controls and stricter eligibility for imported waste-based biofuels — although actual enforcement remains unclear.

What is most glaring in the Commission’s stance is the lack of attention to the double counting (DC) mechanism, which has played a central role in incentivizing misdeclaration. By allowing waste-based fuels to count twice toward targets, RED creates a structural advantage — but one that is easily exploited without strict verification. Ironically, this same DC framework has discouraged crop-based biodiesel demand, hurting producers across Europe. Groups like UFOP have raised the alarm for months. On top of that, the Union Database (UDB) — the intended safeguard for traceability — remains only partially implemented. Despite a May deadline, most Member States are behind schedule, and only Danemark is reportedly in full compliance. Yet this systemic weakness goes unmentioned in the Commission’s update. Until the UDB is enforced and DC rules are rebalanced, the risk of distortion and fraud will remain high — and Europe’s own producers will bear the cost.

UCOME values in ARA have softened slightly despite firm feedstock pricing in Asia. FOB China and FOB Strait levels remain elevated, supported by tight export availability and sustained SAF/HVO demand. While nominal arbitrage to Europe remains open, physical flows are increasingly challenged by logistics, compliance costs, and regulatory uncertainty. Spot premiums to gasoil are holding steady rather than expanding — reflecting buyer caution and a preference for traceable, documented product.

At the same time, RME continues to command a widening premium over Fame 0 in ARAG, now at roughly $41/t. Current spot levels place RME near $1,370/t and Fame 0 around $1,329/t. The forward curve reinforces this premium structure, with RME holding value into Q4 while Fame 0 weakens more steeply, narrowing the differential into the $20s/t. This reflects both winter-grade storage strategies and the relative regulatory comfort associated with crop-based, domestic-origin molecules. The ongoing fraud discussions only strengthen the case for supply with strong traceability.

Hydrotreated molecules are diverging sharply. Class II HVO is trading at a premium of more than $1,440/t to escalated gasoil benchmarks, and Class IV is not far behind. This reflects strong compliance demand for renewable diesel options with robust carbon performance and minimal documentation risk. SAF pricing remains high but relatively stable, indicating that diesel blending is absorbing more of the margin in the current market structure. Limited availability of compliant Asian material is further tightening the supply balance.

Meanwhile, in the United States, regulatory inertia continues to weigh on the market. D4 RINs have hovered around $1.26 for over ten days, reflecting a lack of fresh catalysts and no clear progress on unresolved Small Refinery Exemption (SRE) petitions — some of which have been pending since 2018. With Congress entering summer recess and leadership preparing for a potential debt ceiling standoff in September, the risk of a federal shutdown has increased. This could further delay critical rulemaking, including 45Z implementation guidance and long-overdue adjustments to the RFS. For now, traders remain in wait-and-see mode, with minimal paper activity and limited price movement in U.S. compliance markets.

Global Watch: Gasoil Market Faces Sanctions-Driven Risk

Traders should also remain alert to gasoil supply risks stemming from the enforcement of the EU’s 18th sanctions package on Russia. The latest round includes operational and repair bans on Nord Stream-linked assets and brings the total number of sanctioned vessels to 444, including 105 newly added tankers. While EU imports of Russian LNG and gas have risen sharply in 2023, logistical stress is mounting — especially with Russian oil exports falling by 100,000 bpd in June and July revenues down 37% YoY. As intermediaries like UAE and Turkey handle growing shadow trade, markups of 20–30% are being reported. With inventories still below seasonal norms, the August–September window may prove volatile for diesel and middle distillates across Europe — just as demand peaks and maintenance ramps up.