Blogging Ethanol & Biodiesel

Unfortunate turn of events for German automakers

Amid rising fuel prices and anxiety as to whether the higher blend level could be run in German car engines, the country's Environment Minister Sigmar Gabriel said Friday that plans to raise the ethanol level from 5% to 10% had been utterly cancelled.
        The government had previously warned the 10% blend level plan would be abandoned if more than one million vehicles could not run the fuel. He said that the government was now estimating that, in fact, the engines of 3.3 million vehicles would have been unable to tolerate E-10.
        In a dynamic familiar to that which has transpired in the U.S., German automakers, whose cars generally do not score well in efficiency, had been supportive of the E-10 strategy as a way to forestall legislation that might enforce better fuel economy.
        Industry association Verband der Automobilindustrie, anchored by BMW and Mercedes-Benz's had previously submitted what they thought was the correct figure for the number of cars on German roads not capable of running E-10, but somehow, at 360,000 their number was way, way off.
        Now, with the cancellation of E-10, the German car industry will "have to come up with other technical measures" to meet European Union emission targets of 120 grams per kilometer, Gabriel said, joking that auto parts makers would be pleased.

EU environmental groups rally against 10% biofuel target

         Citing water shortage and deforestation concerns, a consortium of 17 environmental non-governmental organizations are contesting the European Council's (the highest political body of the European Union) plan for a 10% binding minimum target for the share of biofuels in transport by 2020.
         In the groups' letter to EU Energy Commissioner Andris Piebalgs, the NGOs said the Council's target did not fully address the two issues, particularly because the proposal does not provide protection for savannas or permanent grasslands that may be threatened by expanding agriculture.
         Added to that is the NGOs' contention that the greenhouse gas calculator in the Council's draft proposal is not only "too simplistic," but also that it is "skewed towards making biofuels look better than they really are." In addition, "large scale biofuel production can cause indirect or knock-on impacts, such as increasing food and feed prices and increasing water scarcity, which would lead to negative impacts on the world's poor," the groups said.
         The NGOs are calling for a ban on the use of sugar cane, corn, and some varieties of canola and palm oils in biofuels production.
    Talk Back! Tell us if you think the critique is fair, or another cheap shot by naysayers at an easy target.

If food will no longer be cheap, must that be so unpalatable?

           A lengthy couple of stories describing the trade-off between biofuels and higher food prices will make for a particularly ominous cover for The Economist next week. High food prices, as many have observed, hurt anyone who loses more from food than he gains from a higher income. So if governments do nothing to amend the disparity, the world faces more misery, especially among the urban poor.
        However, the Economist coverage takes a balanced view and even surprises us for being possibly the first time we've ever seen the food versus fuel argument framed optimistically.
        The advent of biofuels and subsequently higher priced food, one article in the issue posits, chance to break the "dizzying" cycle of government subsidies and the counter-measure of protective tariffs, because higher food prices will mean subsidies can stop messing with a fair market. The European Union is already preparing to do a top-down review of its hugely distorting Common Agricultural Policy.
        "The reforms of the past few decades have, in fact, grappled with the rich world's farm programmes—but only timidly. Now comes the chance for politicians to show that they are serious when they say they want to put agriculture right."

U.N. is urged to disavow 'rogue' ethanol predictions

The gathering alliance of ethanol interest crusaders which last week was content to simply call for more production is now calling on the United Nations to disavow “rogue” and “apocalyptic” statements made recently by one of its representatives.
        The rogue in question is Special Rapporteur on the Right to Food Jean Ziegler, who in Switzerland is a senior professor of sociology at the University of Geneva. In August, Ziegler called the conversion of farmland to biofuel production "a crime against humanity," and recommended in his recent report to the U.N. a five-year ban on biofuel production and expansion. Ziegler argues that converting land to biofuels lowers food production and raises food prices for the poor.
        Pandering to the world's poor is a dangerously anti-ethanol sentiment, and Brazilian Sugar Association President Marcos Jank, held a press conference to accuse Ziegler of simply making an "emotional argument."
        "A moratorium would be bad news for the ethanol industry around the world," Jank told reporters.
        "It could hinder countries in Europe in particular from expanding their own ethanol production," Jank said.
       Now who's being emotional?

World's ethanol lobbyists not so much a force to be reckoned with

Some $2.3 billion in federal support would flow to biofuels under the Senate farm bill, half of it to develop cellulose as a feedstock for fuel ethanol. Ag Committee chairman Tom Harkin (D-Iowa) said the bill "puts us on a path" to produce 60 billion gallons of biofuels by 2030, roughly 10 times current output.
        At this time, the bill is not written to include a biofuels blending mandate (the Senate energy bill wants to up blending to 36 billion gallons by 2022), but that isn't stopping the farm lobby.
    In fact, the world's ethanol lobbyists took some time from squabbling over protectionist regimes and conducting ridiculous polls to issue a a rare joint statement from Amsterdam yesterday.
        "As oil prices soar to $100 per barrel and declining petroleum reserves become ever more costly to extract, it is vital that we move quickly to expand the production and availability of biofuels such as ethanol," goes the statement by the heads of the Canadian Renewable Fuels Association; the European Bioethanol Fuel Association; the Renewable Fuels Association; and Brazil's Sugar Cane Industry Association.
        Groups such as these are, as of late, either just making a poor showing, or really do have nothing left except demonstrating how confused everybody is. Meanwhile, environmental, economic and social welfare groups, once supportive of ethanol, are now mobilized against it, and using scientific method, however antiquated, to raise concerns that rainforests will be pushed into crop production, food prices will keep rising, and the world's poor will shoulder the burden.

U.S. and EU need better biofuels policy

Photo courtesy of the Arizona Department of Transportation

    In the bi-annual World Economic Outlook of the International Monetary Fund (IMF) released last week, the IMF criticized the U.S. and the European Union as examples of how not to handle biofuels policy.

    The biggest beef the IMF had was with tariffs: the IMF recommended that the U.S. and the EU give up their tariffs on ethanol and biodiesel, as well as remove their tax credits promoting domestic biofuels production. Reasons given were that feedstock prices (Brazilian sugarcane and Malaysian palm oil, as examples) are lower in the developing world, the feedstocks usually have better levels of energy that can be outputted for biofuels, and the production of biofuels from those feedstocks requires less energy in general.

    Instead of tariffs and tax credits, the IMF made three policy recommendations: allow free trade in biofuels while levying a carbon tax on all fuels to reflect emissions costs; establish a blending mandate with a clear time limit in order to give countries a deadline to work with; and support research and development of renewables.

    Do you think the IMF was right in suggesting that the U.S. and EU should eliminate biofuels tariffs? If you don’t agree, what would be better?

Germany's Biodiesel Blues

        For the past several months, German biofuels producers have been complaining that their country's tax on biodiesel has crippled Germany's biodiesel industry. Various news reports have been saying that German biodiesel capacity has been running at 60-70% capacity in 2007.
        "If we will not have any change in our regulation in Germany it is very clear that within the next two years more or less 50 percent of the [biodiesel] capacity in Germany will vanish," Reuters quoted Karl Giersberg, chief financial officer for German producer EOP Biodiesel, as saying.
        This is all due to the biodiesel tax of €0.09 per liter that was implemented in August 2006. The German government had said that the tax, which was to be raised in stages to €0.45 per liter by 2012, was enacted to help offset losses in petroleum tax revenue.   
        The biodiesel companies are hoping that one or more of several actions will take place: that the German government drop a planned tax increase of six cents per liter in 2008, which is an action the conservative Christian Democrats are considering; that tax breaks to farmers are extended, which is what the Social Democratic party is suggesting; that the biodiesel blend in diesel increase from 5% to 7%; and that the biodiesel tax change from a fixed tax to a variable tax based on the price of crude oil.
        The question is, should Germany's government relieve biodiesel producers of the taxes imposed upon them? I may be comparing apples to oranges, but protecting German biodiesel producers from cheap foreign imports reminds me of the attempts by U.S. corn-ethanol producers to protect themselves from cheaper sugar-based ethanol. Of course, ethanol has more controversy surrounding it, from an emissions standpoint. Perhaps the best is from the viewpoint of environmental sustainability: oil from rapeseed, which is used to make biodiesel, doesn't have as much environmental impact as palm oil from Malaysia (which some say causes deforestation).

Lula convinces Sweden to lift its import duty

Image courtesy: National Geographic
Sweden's announcement that it will remove its import duty on ethanol speaks to the apparent success of President Luiz Inacio Lula da Silva's visit last month. His tour of Scandinavia was aimed at striking a deal to standardize the co-development of ethanol in order to create a larger world market for its trade.

Swedish PM Fredrik Reinfeldt wants Sweden's duty, introduced in January 2006, to be lifted by January 1, 2009 at the latest.

However, the measure first needs to be approved by the European Union.

The EU has recommended that countries add ethanol to petrol at a proportion of 5.7% by 2010, and also replace 10% of fuels with renewable energy sources by 2020.

How does that Lula charm play States-side? No country is looking to rankle its base of production. In March, Lula signed a memorandum of understanding with President Bush towards the "promotion of the use of ethanol in other countries." I.e., all the world (of non-producing countries) should be the stage.