"We have always said that the EU will not tolerate unfair trade practices and will pursue vigorously any well-founded complaint," said Peter Power, a spokesman for EU Trade Commissioner Peter Mandelson.
In April, EU biodiesel producers complained that they were being hammered by U.S. subsidies that were distorting the growing international trade in plant-based fuels.
The Commission on Friday said there was enough evidence to warrant anti-subsidy and anti-dumping investigations.
European producers say their U.S. rivals benefit from big subsidies when they blend biodiesel with small amounts of mineral diesel in the United States, creating unfair competition that has put much of EU industry out of business.
The European Biodiesel Board said it was crucial that Europe took measures quickly against the so-called B99 blend imports which it said broke World Trade Organization rules.
"It will be essential that countervailing measures targeting B99 imports are imposed by the EU authorities in a reasonable timeframe," it said in a statement. "In the absence of such measures, the situation of the EU biodiesel industry would become even more critical than it is at present."
U.S PRODUCERS SAY NOT TO BLAME
U.S. imports into the EU are larger than from any other country and increased from about 7,000 tonnes in 2005 to about 1 million tonnes in 2007, the Commission said.
U.S. producers deny their exports are behind Europe's problems which they say are caused by local factors such as biodiesel taxes in Germany and the rising price of the raw materials.
They have suggested they might hit back with action of their own, saying EU fuel specifications discriminate against imports.
Brussels now has up to nine months, until March 13, 2009, to decide whether U.S. imports need to be hit with duties on a provisional, six-month basis, and after a further six months it could extend them definitively, usually meaning for five years.
Any proposal by the Commission to impose duties would have to be backed by EU member states.
European producers pointed to U.S. federal excise and income tax credits and a program of grants to finance increased capacity, plus state-level subsidy programs, as evidence in the anti-subsidy case, the Commission said.
The Commission wants to encourage the use of biofuels as part of its strategy to tackle climate change.
It said the decision to launch the investigations into the U.S. imports was not linked to that policy.
Biofuels have come under attack by many scientists and environmental groups that contend their production has contributed to food price inflation, depleted rainforests and failed to save substantial greenhouse gas emissions.
Biodiesel is the second most important biofuel and is mainly produced from vegetable oils such as soybean oil, rapeseed oil and palm oil. Other feedstocks such as tallow and used cooking oil are also used.
(Reporting by David Brunnstrom; writing by William Schomberg and David Brunnstrom, edited by Dominic Evans)