The B99 row with the United States appears to have almost destroyed the development of the EU’s nascent biodiesel industry. Events have reached the point where a legal complaint from the European Biodiesel Board was lodged with the EU on the 25th April in an attempt to stop the current US biodiesel subsidies that permit companies to import 100% biodiesel into the US, mix it with as little as 0.1% of mineral diesel and then export it to Europe, benefitting in the process from US subsidies of up to $300 per tonne. This fuel, once landed, also becomes eligible for European blending subsidies and allows the US exporters to undercut EU biodiesel prices by up to 30%.
The EBB, that represents some 56 companies and associations responsible for 80% of biofuel production in the EU, stated in its submission that B99 “has progressively disrupted the margins of European biofuel producers, putting most of them out of business”. It also stated that B99 is undermining progress towards the EU’s target of achieving a 10% share for biofuels in transport fuel by 2020.
The EU executive now has until the second week in June to decide whether to launch investigations. A further nine months is then likely to pass before any action will be taken. That action will, if the US does not act, probably involve imposing additional duties on imports of US products.
Meanwhile what is the UK doing to encourage its own home grown biofuel industry? Currently, we could describe the UK Governments’ response as at best, wait and see. The Renewable Transport Fuels Obligation came into force on April 18th requiring suppliers of motor fuels to ensure that 2.5% comes from renewable sources. This is due to increase to 5% by 2010. At the same time, issues raised by the green movement such as sustainability, the destruction of rain forests and the food versus fuel debate has led to the Cabinet reviewing its position. Ruth Kelly, the transport secretary has ordered a review, which is due to report this month. The Prime Minister recently stated that Britain will push for changes in EU biofuels targets if the review shows rising biofuel production is driving up food prices and harming the environment.
Against this background it is impossible for anyone to raise money to build a biofuel plant in the UK today. Not only that but existing biofuel businesses are struggling and, unable to compete with B99, D1 Oils has closed its refinery in the North East and is now concentrating on feedstock production. It is time for government to recognise that biofuel plants will not build themselves and to lay down long term guidelines that will allow the UK to play its part in delivering the renewable fuel obligation it claims it wants.

Two of the world’s largest oil companies have now declared themselves in favour of developing two very different renewable fuel feedstocks. Shell has opted for algae and BP for jatropha. BP’s choice appears much safer as jatropha is already being grown commercially in India, Africa and China. Algae is still in the development phase. However, neither technology is yet a proven fuel producer.
Jatropha appears on the surface to be a good bet to take over from rapeseed as the primary feedstock for bio diesel. It has the advantage of being toxic and therefore unsuitable for human or animal consumption. It can grow on poor soil and, once established, requires little water. It also produces a high oil yield per hectare. However, it is still early days. Relatively little jatropha has been grown and even less shipped around the world. This latter point is important as oxidation could be an issue. However, most of the signs are positive and BP would not have backed jatropha without being confident of a positive outcome.
Shell’s backing for algae appears a much bigger gamble. The list of issues preventing the successful commercial production of high oil bearing algae is long. Yet, if addressed and overcome the benefits are enormous. Algae can be grown in salt water. It reproduces at an incredible rate and can produce more oil per hectare than any of the current alternatives. It also feeds on the very CO2 that the world needs to reduce if it is to achieve its declared carbon goals.
While on the surface this may appear to be a simple issue of ‘you pays your money and you takes your chance’ the fact that two industrial giants have backed two evolving technologies in the renewable energy field means a solution to the current issue of food versus fuel that dogs the use of so many types of vegetable oil today may be found much sooner than anyone thought.

The recent history of algae suggests that by the second decade of the 21st Century algae should have taken over from mineral diesel as everyone’s fuel of choice. It grows in salt water, it feeds on CO2 and can produce more vegetable oil per acre than an acre of soya, an acre of rapeseed and an acre of sunflower combined.

Yet, despite all the research funding being thrown at it, no-one appears to have found a way to grow a strain of algae that can produce high levels of oil, avoid being eaten by other strains and duplicate itself whatever the weather.

Meanwhile, the entrepreneurs are out of the blocks and companies as far apart as Holland and South Africa are promoting and selling algae oil production systems that, we are told, will deliver vegetable oil at a commercial price.

The South African company De Beers Fuels (no relation to the diamond company) have promoted hard and early. Their pitch has sold a reported 90 small bio diesel refineries on the basis of a presentation promoting algae. These may have to run on conventional vegetable oil for rather longer than was planned before the benefits of algae kick in.

The issue of American bio diesel traders exploiting a loophole in US legislation allowing them to benefit from US subsidies and rebates as well as European excise duty rebates to undercut European bio diesel companies selling in their own markets continues to tax the industry. There are calls for the European Union to take action that could include placing duties on US imports until the loophole is blocked..

Put simply, the issue is as follows; US bio diesel refiners would normally buy their feedstock for the same price as their European competitors (currently around $1,000 per tonne) and refine it for the same cost (around $125 per tonne).  However, a loophole in US subsidies has encouraged traders to buy bio diesel abroad, ship it to America, add a splash of mineral diesel to qualify for a $1 per gallon subsidy, intended to encourage the US domestic bio diesel industry, and then ship it to Europe where they can sell it below the prevailing European price and still make a profit.

While technically, there is nothing to stop European bio diesel producers doing the same thing; shipping to the US, having a US subsidiary add 1 gallon of mineral diesel to every 99 gallons of bio diesel and then shipping it back to Europe and benefiting from the $1 per gallon US subsidy, this is clearly a loophole that no-one envisaged when the subsidy was put in place.

The European Biodiesel Board has been tracking these shipments and their figures indicate that 200,000 tonnes of bio diesel was imported to Europe from the US in the first four months of 2007.  With the price of crude oil currently above $80 a barrel this number could grow dramatically if the loophole is not closed.

Watch this space!

Here we go again.

The EU, in attempting to advance the renewable energy debate, declares a desire to have 20% of its energy needs as renewable by 2020 – a big step forward in reducing greenhouse gases. Within this total, the EU bio fuels directive has set an indicative target for bio fuel content of road traffic fuels of 5.75% by 2010.  This means there is a need for 17.25 million tonnes of bio fuels versus the current (2007) volume of around 8 million tonnes. Given that a refinery takes at least eighteen months to build, the embryonic industry clearly needs all the encouragement it can get if the EU is to deliver!

But instead of encouragement we have every green activist on the planet challenging this goal as encouraging the destruction of rain forests, peat bogs and pushing grain prices beyond the reach of ordinary people. The City twitches and the share price of renewable fuel companies falls.

This means the funds needed to make this renewable target happen have become more difficult to obtain and the pioneers preparing to build the refineries and negotiate the purchase of feedstock volumes become more and more disillusioned.

Of course Governments need to be challenged as they evolve solutions to new issues affecting the future of our planet but, if the whole renewable energy movement is to move forward, it is to be hoped that the investment community will remain focussed on the long term benefits and undoubted future profitability of the sector as they evaluate the new build programmes put in front of them.

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