S.E.R.G. WP Series #02-2025: "Unfair Trade in the Circular Economy? Price Dynamics in Chinese and European Waste to Biofuel Industries"

2025 - Edouard Civel, Olivier Massol and Arthur Thomas

Amid ongoing concerns about the alleged dumping of Chinese waste-based biodiesel, this paper investigates the price formation dynamics of Used Cooking Oil (UCO) and its derived biodiesel, Used Cooking Oil Methyl Ester (UCOME), between China and Europe. Using a Vector Error Correction Model (VECM) and Granger causality tests, we examine both long- run equilibrium relationships and short-run price interactions. Our results show that European biodiesel prices lead both UCO and UCOME prices across regions, confirming Europe’s role as the primary price setter. However, we identify persistent periods during which Chinese biodiesel prices fall significantly below their long-run equilibrium, suggesting strategic pricing. An extended VECM reveals that during these episodes, price correction mechanisms break down, indicating a temporary decoupling of Chinese prices from European market signals. This pattern points to potential distortions linked to export strategies or state intervention. These findings have important policy implications. They provide robust empirical evidence of sustained price misalignments that may justify anti- dumping duties or other trade measures. More broadly, the study highlights the need to integrate strategic trade considerations into European biofuel policy to protect domestic industry and uphold the environmental integrity of the circular economy.

Used Cooking Oil; Biofuels; Circular economy; Price integration.