Winds of Change: German Biodiesel Industry Faces Challenges

Vibrant splashes of yellow festoon the German landscape each May as fields of fall-sown rapeseed begin to blossom. Just as soybeans are the base of the U.S. biodiesel industry, rapeseed is the German industry's base. Biodiesel Magazine takes a look at Europe's largest biodiesel-producing nation.
By Susanne Retka Schill | June 09, 2009
Germany's once-booming biodiesel industry is facing many of the same challenges as the U.S. industry, with a number of notable differences. Last year's wild ride combining skyrocketing commodity prices, a demand-dampening world recession and biodiesel's loss of star status among environmentalists delivered difficult times for biodiesel producers.

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.

"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.


Sustainability is not a new concept for German agriculture. The International Sustainability and Carbon Certification project, supported by the Agency for Renewable Resources in the German Federal Ministry of Agriculture, began a pilot project in late 2006 to develop a system to certify sustainable biofuel production, documenting the bioenergy path back to the field. For the agricultural component, the ISCC is building on EU cross-compliance regulations. Cross compliance was part of the 2003 reforms in the EU Common Agricultural Policy that decoupled direct payments from production. To qualify for subsidies, farmers must comply with various regulations regarding the protection of ground and water quality, careful use of fertilizers and pesticides and species diversity. Under the EU's Renewable Energy Directive, there will be new requirements for documentation, accounting for GHG contributions and direct land use change. Biodiesel feedstocks will have to be certified as not coming from converted forests, wetlands or permanent grasslands.

Interestingly, given the current debate in the U.S., the ISCC says that, while it is incorporating direct land use change into the GHG balances during certification, "It would be unjustified to blame indirect changes in land use on biofuels only. The main driving force behind the expansion of agricultural area is the growth of population and the increased prosperity in many developing and transition countries."

Rapeseed Base
The biggest challenge for the German biodiesel industry may be getting the rapeseed production from Germany's 300,000 individual farms certified in the new system, since the majority of the country's oilseed crop is used for biodiesel. Rapeseed oil is by far the dominant biodiesel feedstock in Germany, amounting to as high as 90 percent at one point, although in recent years an increasing amount of waste vegetable oils and animal fats are being used in biodiesel production. Rapeseed acreage has grown from just 100,000 hectares (247,000 acres) in the 1980s to around 1 million hectares (2.47 million acres) in the 1990s to a peak around 1.5 million hectares (3.7 million acres) in 2007-nearly a quarter of all hectares seeded to rapeseed in the 27 member states of the European Union. The average rapeseed yield in the EU-27 is about 2.8 metric tons per hectare (approximately 1.25 tons per acre).

Rapeseed oil prices topped out in mid-2008 in Rotterdam at $1,700 per metric ton, but they began dropping off to just under $800 per metric ton and more recently climbing back to just under $1,000 per metric ton this spring. In comparison, soy oil hit $1,400 per metric ton in Chicago at the peak, dropping to $680 per metric ton early this year, and then rising back to $800 per metric ton. In May, soybean oil in Europe was trading just under rapeseed oil, which is much closer than the historical spread. Typically, German producers blend in cheaper palm and soy during the summer months, and revert to high rapeseed content for winter cold flow requirements.

Perhaps the most dramatic difference in the German biodiesel industry compared to that of the U.S. is Germany's large number of crushers. The country has more than 540 small, local, crushing plants with a combined crush capacity of 800,000 metric tons. That is dwarfed, however, by the dozen large crushing facilities with their combined capacity of 10 million metric tons. That puts the crushing capacity at more than double the amount needed to supply the biodiesel capacity of 5 million metric tons in 2009. That 5 million metric tons (1.5 billion gallons) of biodiesel capacity would, in turn, supply 17 percent of the country's total diesel consumption of around 29 million metric tons per year. Considering that Germany is just slightly smaller than the U.S. state of Montana, the numbers portray a German biodiesel powerhouse.

Susanne Retka Schill is assistant editor of Biodiesel Magazine. Reach her at [email protected] or (701) 738-4922.
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