Biodiesel drive runs out of gas

By Joshua Chaffin in Brussels
Published: March 19 2009 17:46

Four years ago, when biofuels were being hailed as the way of the future, Doug Ward opened one of the UK’s first commercial biodiesel plants.
These days, Mr Ward’s £20m ($29m, €21m) facility in Newharthill, Scotland is running at 60 per cent capacity and struggling to break even. Unable to raise money from investors, he recently shelved plans for another biodiesel project. “It has been absolutely farcical,” says Mr Ward, chief executive of Argent Energy.

Just a few years ago, Europe’s fledgling biodiesel industry was attractive to green entrepreneurs after the European Union and member states had begun setting mandatory targets for consumption of fuels made from corn, sunflowers, used cooking oil and other environmentally friendly ingredients.
But biodiesel producers are making less than half the industry’s 16m tonnes of annual capacity, according to estimates from the European Biodiesel Board, an industry trade group.
Meanwhile, collapses such as that of the UK’s D1 Oils or Germany’s Campa and TME have become commonplace – as have stories that European facilities are being dismantled and shipped to China.
The chief culprit is obvious to many European executives: a surge in imports of cheap US biodiesel underwritten by illegal government subsidies, they claim. From just 7,000 tonnes in 2005, US producers now send more than 1m to the EU each year.
“If that injury could be removed tomorrow, I could assure you that our industry would again be profitable,” says Amandine Lacourt, project manager at the EBB.
The EU took steps to remedy that last week, announcing temporary anti-dumping and anti-subsidy tariffs on US biodiesel. Those duties will last four months while an investigation is conducted and will range from €23.60 to €237 ($325, £223) a tonne.
Lutz Guellner, a European Commission spokesman, defended the measures, saying: “Anti-dumping and anti-subsidy measures are not about protectionism, they are about fighting unfair trade.”
But some executives and analysts argue that the challenges confronting the industry are more varied than subsidies alone, and will therefore be more difficult to overcome.
“Although the US is partly to blame, there are other factors,” says Sandrine Dixson-Decleve, executive European director of Hart Energy Consulting.
One of the biggest, according to Ms Dixson-Decleve, is the price of crude oil. When prices touched a record $147 a barrel, biodiesel – along with wind, solar and a host of other alternative energy sources – was attractive to consumers. Now, with oil at about $42 a barrel, that is no longer the case. “On pure economics, when oil is $30 per barrel, [biodiesel] doesn’t work,” says Mr Ward.
Ms Dixson-Decleve estimates that oil would have to reach at least $75 a barrel for biodiesel to be viable.
In Germany, which has been the hardest hit among European producers, taxes may trump oil among the reasons for biodiesel’s distress, according to some observers. The German industry thrived as the result of generous tax breaks granted under the administration of Gerhard Schröder.
“Biofuels back then were the rage,” said Sebastien Schöbel, a spokesman for the Association of German Biofuels Producers.
But Germany began to repeal the tax breaks in 2006 after Brussels ruled that they were excessive. Producers had little popular support to argue against the change after biofuels were linked to the surge in global food prices two years ago. At the same time, environmental groups began to question the greenhouse gas emissions generated by the full chain of biodiesel production. These days, Germany’s biodiesel is no longer competitive on its own and is sold almost entirely to meet government requirements that call for the blending of traditional diesel.
In the months ahead, the trade duties and an expected recovery in the price of oil should offer some relief. But Ms Dixson-Decleve argues that the European biodiesel industry will probably never reach the heights that some promoters imagined just a few years ago, and it will be particularly hard pressed to restore subsidies at a time when so many other ailing constituencies – from agriculture to carmakers – are clamouring for help.
Copyright The Financial Times Limited 2009