Expansion plans have been shelved, a few producers have gone out of business, and restructurings have occurred as the industry hangs on. On top of the problems faced by most in the global biodiesel industry, German producers experienced plummeting retail demand as the government began phasing out tax incentives favoring biodiesel. Germany’s primary feedstock, rapeseed, usually trades at a premium to soy or palm so it’s no wonder the Germans wanted to stop cheaper, U.S. subsidized B99 imports by pressuring the
European Commission to impose countervailing duties.
Uncertainty in the face of the pending duties and shaky world economics nearly paralyzed the German biodiesel industry in the first quarter of this year, says Mike Durels, a biofuels broker with Star Supply Renewables. Proposals in the German parliament to change blend targets and even to ban soy- and palm-based biodiesel added more uncertainty. The net effect was the biofuels trade sat back to wait it out, which in turn caused a build up of supplies—not only from less demand, but from U.S. product being shipped in to beat the expected tariffs. It wasn’t until early May that the oversupply worked through, and the markets began functioning more normally.
When asked if stopping U.S. biodiesel imports has had an effect, Dieter Bockey, policy specialist for UFOP, the Union for Promoting of Oilseeds and Protein Plants, says he’s heard few comments from members. “Biodiesel plants are running and are producing rapeseed biodiesel because rapeseed at the moment is cheaper than soya oil,” he says. While in the past year the industry has run at 40 to 50 percent of capacity at times, Bockey reports the average utilization of capacity was at 60 percent. German biodiesel capacity in 2009 is just over 5 million metric tons (1.5 billion gallons) per year.
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“What’s hindering the market as much as anything is the change in legislation from one year to the next,” Durels says. “That’s causing people to hold off on signing forward contracts.” Over the winter months, the German parliament eased its biofuel blend requirements, dropping them from 6.25 percent on a caloric basis down to 5.25 percent; although the biodiesel industry had one last chance in May to keep the higher blend quota. The quota increases for the next few years were reduced as well, and in 2015 the energy content quota is to be dropped with a net greenhouse gas (GHG) savings quota initiated in its place. The proposal to ban soy- and palm-based biodiesel was not supported in the European Commission’s review, and was subsequently dropped. By far the biggest impact on German biodiesel producers has been the phasing in of fuel taxes on biodiesel.
“There are big differences among the companies,” Bockey says. While the large, established biodiesel producers are surviving, smaller and newer companies, especially those located in eastern Germany, are experiencing more problems. “We don’t know the exact figures, but we assume that companies like ADM (Archer Daniels Midland Co.) or Cargill have very good competitive positions,” he says. “They have integrated plants, they are leaders in food stocks, they have the oil crushing plants and markets
for the byproducts, rapeseed meal or soybean meal and glycerin. They are also closely connected on the regional level to the big oil companies using biodiesel as a blend component.”
The blending mandates are relatively new, established to offset the loss of tax incentives. Until three years ago, Germany’s hefty fuel taxes were waived for biodiesel, giving B100 a competitive edge at the fuel pump resulting in rising biodiesel sales at public filling stations each year between 2001 and 2005. In August 2006, the German government began phasing in fuel taxes on biodiesel beginning with 9 cents per liter until January 2008, when they rose by another 6 cents per liter. The fuel tax will continue to rise until it equals the petro-diesel fuel tax at 45 cents per liter in 2012. Straight vegetable oil fuel taxes are being raised in the same manner. Companies trading in fossil fuels face a hefty penalty for noncompliance of 60 cents per liter.
The impact at the retail pump has been dramatic. Biodiesel sales last year were half that of 2005, with 1,167 million metric tons (350 million gallons) sold in 2008. Also, the number of filling stations offering pure biodiesel dropped from 1,900 to only 250. Another 1.5 million tons (448 million gallons) was blended into all diesel sold in the country in 2008. UFOP and other biodiesel supporters have complained that the mandated blend in all diesel fuels will hardly compensate for the loss of B100 sales, providing a market for only 1.5 million metric tons (450 million gallons) at a B5 blend.
The blend market is expected to improve some as Germany transitions to the new B7 approved in January. Germany is among the first in the EU to develop standards for a B7 blend, which will boost the blend market in Germany to 2.1 million metric tons (630 million gallons). France and Austria have also adopted B7 standards. Once adopted throughout the EU, B7 blends will provide an estimated market for 11 million metric tons (3.3 billion gallons), although that will still not fully utilize the EU’s combined biodiesel capacity of 15 million metric tons (4.5 billion gallons).
EU Changes Ahead
Looking ahead, the industry expects more changes as the EU’s Renewable Energy Directive passed this winter begins being adopted. Officially published in May, the member states have 18 months to implement the directive in their national regulations. Overall, the RED calls for 20 percent GHG reductions and 20 percent renewable content from all energy sources by 2020. Transportation fuels are to reach 10 percent renewable content by 2020, although 40 percent of that is expected to come from second generation fuels and other renewable energy sources such as hydrogen and solar. The RED set targets for GHG reductions starting with 30 percent and increasing to 60 percent from 2015 forward. The UFOP has called this a paradigm shift for the industry, moving away from caloric and volumetric blending targets to more emphasis on GHG reduction goals. Sustainability requirements are another new feature that the EU biofuels community will be required to meet.
Germany has already submitted its draft sustainability regulations to the European Commission for approval, outlining a broad framework for certifying sustainable biofuels and bioenergy production. Observers doubt, however, that the draft regulations can be approved and fleshed out into complete certification systems by the January 2010 deadline.
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