EU biodiesel firms blame politicians as demand falls - International Herald Tribune

EU biodiesel firms blame politicians as demand falls

HAMBURG: The European Union biodiesel industry is operating well below capacity despite top-level political moves to increase the use of biofuels to combat global warming, according to industry executives.
Many new biodiesel plants have been built in recent years, but many of them have hardly any markets in which to sell, as several countries have been slow to implement promises to increase biofuel use.
"We have been promised a market but it is not yet there," said Raffaello Garofalo, secretary general of the European Biofuels Board, an industry association. "It will come, but in the short term we have to go through a desert."
Much of the European biodiesel industry is working under its capacity, Garofalo said, although no precise figures are available.
Biodiesel sales in the biggest consuming country, Germany, have fallen dramatically this year after Berlin actually started taxing biofuels at a time when the EU wants to promote green fuel consumption.
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Medium-term prospects appeared excellent following the decision by EU leaders on March 9 for a strategic cut in greenhouse gases by using more renewable energy.
But several important countries including Britain, Italy and Spain have not fully implemented past promises to raise biofuel use, Garofalo said. Germany's biofuel tax showed the country was putting financial considerations above the environment, he added.
"Biodiesel is suffering from overcapacity because it is much easier to build production plants than it is to pass legislation," Garofalo said. "If there is no legislative support on taxation or binding targets, there is no real market for biodiesel."
Biodiesel is more expensive to produce than diesel from fossil fuels, and it needs tax breaks or a legal requirement to blend it with fossil fuels at oil refineries to encourage its use.
Germany's biodiesel industry is facing a crisis, with sales at gas pumps down by about 30 to 40 percent compared with last December, said Petra Sprick, chief executive of the biofuels industry association Verband Deutscher Betoningenieure, or VDB.
"Sales in the petrol station market have collapsed this year," she said. "Our price attraction has gone."
Germany is the EU's largest biodiesel producer, with production capacity rising to 3.2 million tons in 2006 from 2 million tons in 2005.
But the German government said it could not afford the loss of revenues as drivers switched from regular diesel, which is heavily taxed, and Berlin started taxing biodiesel in August 2006. For a time, high fossil fuel prices cushioned the effect of the new tax, but falling fossil fuel prices mean drivers now have no incentive to buy biodiesel.
Because vehicles consume more biodiesel than fossil fuels and need more engine overhauls, biodiesel must be cheaper, she said.
"If the government further raises taxes on biodiesel in 2008 as it plans, the whole industry will close down," she said. "This would be a tragedy at a time we need biofuels to cut greenhouse gas."
High prices for rapeseed oil, the main component of biodiesel in Germany, mean that biodiesel is being produced at a loss, she said.
Germany had introduced compulsory blending of biodiesel with fossil fuels from January, but this is only expected to generate demand for 1.5 million tons annually.
German production is being cut and the first biodiesel refinery in the country, BioWerk Kleisthohe, has actually stopped production at its 6,500-ton-a- year plant.
"We just cannot sell any biodiesel this year," said BioWerk's chief executive, Thomas Vahle. "The new tax means it is just not competitive."
"I just do not understand the politicians," he added. "They say it is so important to stop global warming and then introduce a tax to stop me selling my biodiesel, which protects the environment."
Shares in German biodiesel companies have fallen this year as the problems became apparent. One producer, Verbio, issued a profit warning on Monday because of low sales and high costs, causing its share price to fall 40 percent at one point.
On Thursday, Verbio's shares closed up 12 cents, or 1.7 percent, at €7.04, or $9.38. The shares were issued in October at €14.50.
Biodiesel producers in Britain also have problems. The largest British producer, Biofuels, announced this month that due to unfavorable market conditions it had restricted production to 25 percent of capacity in January and February and output would remain low for the immediate future.
The company, which operates a 250,000-ton-a-year plant in north England, has seen its stock price fall to around 15 pence, or $.30, compared with more than 200 pence in May last year.
Another key producer, D1 Oils, has also said it is operating below capacity due to difficult market conditions.