Think U.S. biofuel companies have it bad? European biodiesel companies say they have it even worse -- and they say it’s the United States’ fault.

Not only do they, like their overseas counterparts, have to deal with rising prices for the materials used to make the fuels and all the recent bad press questioning whether the fuels are bad for the environment and are contributing to rising food prices. They also have to contend with a $1 per gallon tax credit that the U.S. gives to American biodiesel producers.

The credit has distorted the real price of the fuel and has led to a practice called “splash and dash,” they claim.

A European Biodiesel Board investigation earlier this month uncovered the practice, in which European biodiesel is allegedly shipped to the U.S. and splash blended with a small amount of U.S. fuel, allowing traders to tap into the U.S. subsidy before the fuel is shipped back to Europe for sale (also see this Green Light post). All the shipping results in needless greenhouse-gas emissions to get a subsidy intended to be a boon for the environment.

On Friday, the board asked the European Union to impose punitive tariffs on the U.S. subsidy, saying it was driving European biodiesel producers out of business, according to Reuters.

Earlier this month, Middlesbrough, England-based D1 Oils blamed “heavily subsidized U.S. biodiesel,” along with rising prices for the feedstocks used to make biofuels and growing concerns about sustainability, when it announced that it was shutting down its newly built biodiesel refineries and would withdraw from the biodiesel business.

The news came after the company, traded on the London AIM under the ticker “DOO,” announced layoffs in March, saying that imports of subsidized biodiesel from the U.S. had eroded its margins (see Cleantech Gets Dirty).

But The Wall Street Journal’s Environmental Capital blog reports that the EU is unlikely to impose anti-dumping and anti-subsidy duties because it doesn’t affect the required 25 percent of overall biodiesel production. The EU has 45 days to decide whether to launch investigations, Reuters reported.

Rick Kment, a biofuels analyst at DTN Research, said part of the issue is really the blender’s credit rather than the production subsidy.

“There’s a loophole in the law where biodiesel can be splash blended and by putting in a minute amount of [U.S.] product, the owner can collect the blender’s credit on the whole product,” he said. “That really has tied into a lot of the profit margins over there. And some European countries have taken away tax credits and subsidies, so it’s been a double whammy. It’s been very challenging for [European companies].”

Apart from the regulatory challenges, Europe doesn’t have as much land to grow crops for the fuel as the U.S., which has exacerbated the feedstock squeeze for European producers, he said.

While they wait to see whether the EU will help save them, European biofuel companies also are working to develop new feedstocks.

D1, for instance, said it hopes to raise £14.9 million to develop low-cost biofuel feedstocks.

Other biofuel companies also are working to develop technologies to use new materials. On Friday, Coskata said it is building a $25 million demonstration plant in Pennsylvania and on Wednesday, Amyris Technologies said it is pairing with Brazilian ethanol distributor Crystalsev to bring the first sugarcane-based biodiesel to the market (see Coskata Picks Pennsylvania for Pilot Plant and Sugarcane Biodiesel Heads to Brazil).

No doubt European producers hope new feedstocks and technology to use waste and cellulosic materials will reach the market before more of them have to shut down.