A Whole New World

The European biodiesel sector faces unique challenges
By Erin Voegele | August 16, 2011

The European biodiesel industry may be the largest in the world, but it seems to be struggling to regain ground lost in recent years. As U.S. biodiesel producers continue to recover from the economic disaster of 2008 and 2009, some segments of the European industry are lagging behind. Public policy and perception issues seem to be holding the industry back and making the future of biodiesel in Europe somewhat unclear.

When asked to describe the current state of the European biodiesel industry, Dieter Bockey, spokesman of Arbeitsgemeinschaft Qualitätsmanagement Biodiesel e.V. (AGQM) paints a rather bleak picture. “There is still huge over-capacity of biodiesel in the EU,” he says. According to Bockey, there is currently 22 tons (6.6 billion gallons) of production capacity in the EU. However, he estimates that the industry as a whole produced only 8.9 million tons of the fuel in 2010.

According to Pierre-Antoine Vernon, a project manager with the European Biodiesel Board, 2011 biodiesel production levels are currently relatively consistent with last year's. One change, he says, is that some biodiesel production capacity within Europe has begun to be dismantled or retrofitted. While Vernon stresses this is currently not a major trend, he says there has been a slight move in this direction.

Frank Strümpfel , spokesman for German biodiesel producer Verbio Vereinigte BioEnergie AG, also notes that many elements of the European biodiesel industry have remained consistent since last year. Germany is still the largest producer and consumer of biodiesel, he says. In addition, overcapacity and high feedstock prices are continuing to put financial pressure on the companies that are still producing. That said, he stresses further shutdowns of biodiesel plants are not foreseeable at this time.

Bockey attributes the low level of production to several factors that go beyond price pressure, including the fact that the national obligations and commitments are currently below 7 percent. This is true, he says, even though the European diesel standard (EN 590) already allows for B7 blends of diesel fuel. “This existing standard EN 590 corresponds to about 14 million tons of biodiesel,” he said.

Strümpfel notes that biodiesel producers in Europe face a significant challenge in that the market is has been defragmented through heterogeneous legislation in different EU member states. Matti Lehmus, Neste Oil’s executive vice president of Oil Products and Renewables, agrees. “It is evident that the short-term process in implementing the Renewable Energy Directive has [been] delayed somewhat and the process is proceeding at a different pace in various countries,” he says. “As a result, the legislation within the EU is becoming increasingly fragmented, and the complexity in the biofuel field is growing and slowing down the development in this sector.”

Bockey adds that there has been a lack of strong and consistent support for biodiesel recently in Europe. “[Policymakers] make no pressure to increase the share of biodiesel in the fuel market, due to the public discussion concerning food versus fuel, greenhouse gas (GHG) savings, the public pressure concerning rain forests, restrictions [and] and problems concerning the use of biodiesel engines and so on,” he says. In fact, Bockey notes that biodiesel seems to be falling out of favor with some in Europe. “The pressure against biodiesel is rising,” he says. Especially the automotive industry does not like biodiesel” due to perceived engine operation problems. According to Bockey, it seems unlikely that a B10 standard will be issued, even though there is a mandate within the European Commission to do so. “The general position of the automotive industry is to substitute biodiesel with HVO (hydrotreated vegetable oil).

Regulations, Imports, Scandal

Although those in the European biodiesel industry note that there has been fragmentation of policy among the EU member countries, the EC has taken several actions in recent months that affect the entire sector.

In early May, the Council of the European Union adopted regulations to extend the anti-dumping and countervailing duties that had been established for U.S. imports to biodiesel to include product consigned from Canada. These duties also were extended to apply to biodiesel blends originating from the U.S. that contain 20 percent or less biodiesel by weight. The measures were taken following an investigation that concluded U.S. biodiesel had been flowing through Canada to Europe, effectively circumventing the required duties.

“The anti-circumvention measures adopted by the council represent a decisive move to ensure that the remedial effect of the EU duties on U.S. biodiesel is fully maintained over time,” said EBB Secretary General Raffaello Garofalo in a statement following the announcement. “Operators should be aware that any future attempt to circumvent the existing duties can be investigated and remedied in the same way, with retroactive financial implications for the companies involved.”

More recently, the EC announced the recognition of seven new voluntary schemes for sustainable biofuels under the RED. The voluntary schemes are mechanisms designed to ensure that biofuels used within the EU deliver tangible greenhouse gas savings when compared to fossil fuels. 
Vernon explains there are two ways in which biodiesel producers can meet the sustainability requirements implemented by the RED. Producers could choose to either face 27 different frameworks, one of each EU member country, or comply with a voluntary scheme that is effective in meeting sustainability requirements in each EU nation. According to Vernon, there are clear advantages in terms of simplicity that result from complying with a voluntary scheme.

“The voluntary schemes are a set of rules developed by a consortium of producers [or] a wider array of stakeholders to guarantee the biofuel’s sustainability according to the RED,” Vernon says. “Once the scheme is made, it has to be recognized by the European Commission…The Commission has now published these voluntary schemes. They can now officially be used by biofuels producers to satisfy the biofuels against the Renewable Energy Directive.”

The voluntary schemes are applicable to both biofuel producers within Europe as well as those who intend to export product to the EU. “Provided that you follow one of these voluntary schemes and you are in compliance…no member state has the right to refuse your biofuels,” Vernon adds, noting that meeting the requirements of a voluntary scheme is essential for selling biofuel into Europe.
Not all the news about biofuels coming out of Europe has been positive, however. In mid-July, reports began coming out of Europe indicating possible scandal in which the EC had leaked previously unreleased studies regarding the indirect land use change (ILUC) impacts of biofuels. While some have speculated that the studies could mean the end for biodiesel in Europe, most in the industry indicate those claims are exaggerated.

The leaked reports have drawn a very negative portrait of biodiesel, Vernon says. If the ILUC GHG impacts estimated by these studies were calculated into the GHG savings currently attributed to biodiesel, it would not be possible for most forms of biodiesel to achieve the 35 percent GHG savings required under the RED. “This is a worrying outcome,” Vernon says, adding that the studies’ ILUC values into the GHG calculations for biofuels would pretty much effectively ban the use of biodiesel within the EU.

Vernon also states that he does not expect that possibility to become a reality. “ILUC modeling still has a very shaky basis,” he says. The more likely outcome is that a compromise will be made. Strumpful adds that ILUC is a theoretical pursuit at this time and that attributing those theoretical GHG values to biodiesel could cause massive damage to the European biodiesel industry.

Lehmus points out that the EC has not yet published any official statements or reports regarding ILUC or how ILUC should be taken into account by the biofuel sector or feedstock producers. “Therefore, it makes no sense to speculate on the possible impacts to [the] biofuel industry at this point,” he says. “ILUC is highly politicized, thus we are not surprised that there are various opinions and reports of various quality regarding the issue with the aim to affect public opinion and decision making. We will wait for the official statements and reports from the Commission and respond accordingly based on the official information.”

According to Bockey, the EC could publish a legal proposal within months regarding possible ILUC amendments to the RED. The fear, he says, is that because the ILUC factor depends on the type of biofuel, the default values will be adjusted in a way that biodiesel production will no longer be able to reach the required GHG reductions after 2017. On the other hand, Bockey says, under the national renewable action plan of 10 percent renewable content in transportation fuel by 2020, there’s a concern that the commission will not present a legal proposal regarding biofuels in the way described, so there is still a huge amount of uncertainty regarding what the commission will actually suggest.

The Future

According to Strümpfel, his company does not expect to see any growth in the German biodiesel industry, due in part to continuing overcapacity, but he says this may not be the case for all of Europe. “Europe will see steady [growth] of biodiesel production in order to reach EU [carbon dioxide] reduction goals for the mobility sector, therefore car manufacturers have to increase their flexibility in higher biofuels blends,” he says.

In order to help support the continued development and recovery of Europe’s biodiesel industry, Strümpfel stresses that the RED has to be implemented consistently across all EU member states. “As long as there aren’t reliable political decisions or rules for the use and production of biodiesel set in place, we will see no further development of European biodiesel industry,” he says.

Lehmus agrees that the development and local implementation of the RED needs to proceed rapidly in order to support the European biodiesel industry. “There are, for example, still various different interpretations of what is considered as ‘waste’ in different EU countries,” he says. “From the biofuel industry’s perspective, there should be a common interpretation of all these key issues among all EU countries.” In addition, Lehmus says it is important for legislation related to biofuels to be technology and feedstock neutral, emphasizing the importance of GHG savings and sustainability rather than supporting specific products over others.

Some policy makers within Europe are also pushing for greater focus on second-generation biofuels. Csaba Tabajdi, a Hungarian representative in the European Parliament who sits on the Environment Committee, recently spoke about the importance of second-gen biofuels at the ScienceBusiness  conference in Brussels.

Like lawmakers in the U.S., Tabajdi touted the job creation opportunities offered by advanced biofuel production. “The bioenergy and biofuel production is a major economic and environment benefit in Hungary and throughout the European Union, while reducing external energy dependence as well,” he said in a transcript of his speech posted to his website. “We must ensure biofuel [production’s] competitiveness and environmental sustainability. We should encourage scientific research,” and encourage the development of a predictable regulatory environment that encourages research and investment of community financial resources. 

Author: Erin Voegele
Associate Editor, Biodiesel Magazine
(701) 540-6986

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