A BIOFUEL firm from Stonehouse, Gloucestershire, has warned that scrapping a 20p tax "buffer" on its products could force small companies to go under.

Green Fuels Ltd, which makes equipment to convert cooking oil into a sustainable biofuel, believe the changes will "wipe out" small-scale commercial production in the UK.

The company which was set up in 2003, has seen its sales drop by more than £1 million over the last year, and is now focusing mainly on exports.

Bosses are also considering shifting more of their operations and manufacturing to their US office.

Instead it will focus on small scale equipment used for on-site recycling of waste cooking oil and production below the duty threshold of 2,500 litres a year.

The "ludicrous" situation faced by the company was raised by Lib Dem MP for Cheltenham Martin Horwood during a Parliamentary debate on biofuels.

He said: "Companies such as Green Fuels in Gloucestershire that provide the technology to convert the enormous wealth of surplus cooking oil into a sustainable biofuel, find that their UK market has collapsed and they are exporting the technology as well."

Struggling

The Government plans to abolish the 20p/litre differential in April 2010. Currently tax levied on low-sulphur diesel is 54.2p/litre while biodiesel stands at 34.2p/litre.

It is expected that the tax change will net the treasury about £550m a year from 2010.

Concerns over the long-term sustainability of biofuels in the UK are said to be the main reason for the move.

Last April, Green Fuels managing director James Hygate promoted his technology by giving 80 litres of 100 per cent biodiesel to county taxi firm Starline.

Mr Hygate said: "Most producers of biodiesel from waste oil produce the fuel on a small decentralised basis, normally from 2,000 to 20,000 litres per day.

"These small businesses are struggling with the change over to renewable transport certificates and the removal of the 20p reduction in the duty as the certificate value is undetermined until the April, following production.

"What is very likely to happen and something that Green Fuels Ltd is seeing already is that the producers of this scale are closing down plants as they do not believe they will be able to operate without the reduction in duty."