Biofuels are growing up in Europe. From an exotic outlet for
European Union (EU) agricultural product in the 1990s, to a
boutique fuel for the green consumer in the 2000s, now
todays industry has filled out and bulked up. In 2011,
biofuels are a globally traded business; this industry has
transformed some of its pioneering suppliers into household
names. But many more European startups lie bloodied by the
wayside or limping along the sidewalk.
Manufacturers, suppliers, consumers, some non-governmental
organizations (NGOs) and even pure-play fossil fuels suppliers
have had their share of growing pains during the rapid rise of
the market. Many biodiesel and bioethanol manufacturers in Europe have
exited the industry or have gone bankrupt.
Now, the European industry stands at a
milestone, warily eyeing billion-dollar investments in
equatorial regions, while nursing the bruises of a less
competitive domestic industry. The industry suffers from
over-investment, says Andrew Owens, chairman and
co-founder of the UKs Greenergy, a prime example of a biofuels distributor that has
succeeded in the green industry. During the
mid-2000s, credit was easy and too much was built, he
says. The industry still has a hangover from that
Dieter Bockey, spokesperson for the Union for the Promotion
of Oilseeds and Protein Plants in Germany, identifies credit
conditions as part of the cause of the rapid growth of the
industry. In 2006, everyone could finance a plant,
he says. But now in Germany, several hundred thousand
tons of production have been idle for several years
Another pillar of the industrys growth is that
phenomenon without which Greenergy might never have made its
astonishing journey from being the new kid in the
1990s, to its position today as the UKs third largest
private company, the tax incentive. When the consulting group
Arthur D. Little reported, in the early stages of the
development of the 1997 Fuel Quality Directive, that when
Sweden had used taxation policy to steer its refiners into
fuels production, the detaxation of greener products was
taken up with relish across large parts of Europe. Article 16
of the European Energy Taxation Directive allowed governments
to exempt fuels, and the stimulus this provided led many to
conclude that there were sound reasons to turn more of
Europes agricultural product into biofuels. That phase,
which effectively afforded manufacturers a 10-year trade wind,
is now drawing to a close. The rules are clear, and the
general policy is to move from promoting biofuels with
detaxation to mandating their use with quotas, says
Two pieces of European rule-making are responsible for this.
The Renewable Energy Directive is a major policy initiative currently being
transposed into national laws in the member states. In the UK,
where it should enter fully into law by year end, it calls for
15% of UK energy all energy, but specifically 10% of transport
fuels, to be supplied from renewable sources by 2020. Compared
to initial ambitions for 20% biofuels in 2020, this goal has
effectively been halved, and some of the more ambitious
biofuels champions have seen slower growth as they realign
their trajectory to a 10% share of the renewable energy in the
transport sector. The target includes second-generation
biofuels that can be double counted in the quota system because
they are derived from used oils, waste or residues.
Conventional biofuel producers perceive this next generation of
sources as further reducing the demand for rapeseed and soy
oils and sugar-derived ethanol.
Alongside the renewables directive are the greenhouse gas
(GHG) provisions of the Fuel Quality Directive. These require
fuel suppliers to reduce the lifecycle GHG lifecycle emissions of products that they
supply by 6% by 2020. In July 2011, the European biofuels
information initiative, EurObservER, reported that
biofuels sales grew by 1.7 million tons/yr (1.7 MMtpy) to 13.9
MMtpy between 2009 and 2010. Of this total, 10.7 MMtpy is
biodiesel and 2.9 MMtpy is bioethanol.
The European standard for biodiesel, EN590, limits the
blending of biodiesel to 7 vol%. Against a total market for 209
MMtpy within the EU, that suggests a potential market of 14
MMtpy. The Union zur Förderung von Oel- und
Proteinpflanzen e.V. (UFOP) reports the stark fact that
European production capacity, at 22.4 MMtpy, exceeds that by
almost 10 MMtpy. The association is calling for B100 or B30
blends to be made available for sale as a way to boost the
European industry, something that would also help fuel
suppliers to hit their own quotas.
In the ethanol market, a failure to meet
even the existing quotas, means that, this year, oil companies
in Europe will likely pay hundreds of
millions of Euros in fines for failing to blend sufficient biofuels into their products.
As I reported in May, a bungled introduction of E10 gasoline
into the large German gasoline market means that the large
players will be paying the German government some 620 for
every 1,000 l when they are below their quota commitment.
Likewise, there are growing pains for German consumers due to a
lack of persuasive information on the suitability of
high-ethanol blends. Result: Many German
drivers have persistently avoided the blended fuels. But for
German oil companies to meet their quotas, they really need to
attain 80%90% of the total marketshare as E10.
Aside from the bottom line hit that the German companies
face this year, there have also been reputational issues to
contend with. Consider Neste, the export-oriented Finnish refinery. This refiner focused on
reacting nimbly to the need for on-spec bioblending components,
as it once did to US West Coast reformulated gasoline demand.
But its attempts to control its supply chain through
involvement with Indonesian palm oil producers have left it
exposed to constant criticism from environmentalists.
Despite its technical and commercial leadership in
hydrogenated vegetable oil production, and its rapidly growing
boilerplate capacity in Europe and Singapore, it is dogged by
claims that its oils resources are destructive to
Greenpeace members wearing orangutan suits who leafleted on
the steps of the Rotterdam World Biofuels Markets conference
this year may be tolerable for a fuels manufacturer at an
industry conference. But how easy it is for some of
Europes major consumer brands, including the airlines
involved in the fledgling biojet fuel market, to deal with environmentalist criticism of what
they see as their green initiatives remains to be seen.
Article 17 of the Renewable Energy Directive requires the
whole supply chain of compliant fuels to be certified.
Unsustainable biofuels will simply not generate the tradable
certificates that must be surrendered to avoid fines under the
scheme. Fuels that do not offer a 35% GHG gas saving compared
to gasoline or diesel will not count in the early phase of the
legislation. In 2017, this threshold will rise to 50% and, in
2018, to 60% for new plants that come onstream after Jan. 1,
Faced with the difficulty of sourcing biofuels that meet sustainability requirements,
its understandable that large oil companies should seek
relationships with Brazilian companies. Sugarcane ethanol from
Brazil has lifecycle GHG emissions that are hard to beat in
an energy-dense liquid.
This year Shell announced a joint venture with Cosan, the
worlds largest manufacturer, which the companies value at
some $12 billion. Cosan represents the best entry to
sustainable biofuels in the marketthe best entry of
scale, Mark Williams, Shells director of downstream
operations, told the Financial Times, adding, we
will take the lowest-carbon, least-impact form of ethanol and
leverage that into a worldwide opportunity.
Its understandably difficult for some European
manufacturers to accept that their markets, stimulated by the
European tax-payer, will be supplied from outside of the EU.
Get over it, says Owens. Trade bodies are looking to be
protectionist and close the door and I think thats
absolutely the wrong way to. European producers need simply to
ask, who are my customers, whats my customers, and
how do I meet my customers needs, he says.
But as Shell spends its billions in the tropics and Owens
feeds UK cars on US cooking oil and Brazilian ethanol, the apparent winners in the
European biofuels market will need to contend with a political
risk that could yet upset their plans. Globalization is not a
philosophy that has emerged completely unscathed from the
restructuring of European economies post-2008 crash.
German and European politicians are no longer accessible
like they once were to the biofuels industry. They dont
reply to letters, says Bockey. Their answer to
requests to support the European biofuels market with tax
exemptions is to ask why they should spend European money to
line the pockets of manufacturers in the US or South
European politicians dont necessarily have to put up
further tariffs to deter biofuel imports. There are less dense
biofuels, uneconomic to transport across the planet, than that
are produced on small farms and at local council facilities from Sweden in the North
to Naples in the south.
Biogasmethane derived from biomass, human, animal and
household wastehas lifecycle GHG credentials that
Brazilian biofuels can only dream of. Stimulating the market
leads to investments in the local neighborhood, not the
Atlantic Basin. Vehicles are becoming more efficient, and the
product is interchangeable with natural gas. Already, European
politicians have seen to it that there are some 7,000 sites in
Germany manufacturing biomethane, and the Swedish market grew
40% last year. Its becoming more important for
German agriculture than liquid biofuels, says Bockey.
That may overstate the importance of a market that is largely
restricted to a strip of Europe from Sweden, through Germany
and the Alps, to Italy in the south.
But manufacturers will be wise to remember that policy makers created the biofuels markets, and their
influence, alongside the power of the free market, will
continue to shape it. HP
Tim Lloyd Wright is
HPs European Editor and is also a
specialist in European distillate markets. He has
been active as a reporter and conference chair in the
industry since 1997, before which he was a feature
writer and reporter for the UK broadsheet press and
BBC radio. Mr. Wright lives in Sweden and is the
founder of a local climate and sustainability