Friday, March 23, 2007

News: EU biodiesel firms blame politicians as demand fails


HAMBURG: The European Union biodiesel industry is operating well below
capacity despite top-level political moves to increase the use of
biofuels to combat global warming, according to industry executives.

Many new biodiesel plants have been built in recent years, but many of
them have hardly any markets in which to sell, as several countries have
been slow to implement promises to increase biofuel use.

"We have been promised a market but it is not yet there," said Raffaello
Garofalo, secretary general of the European Biofuels Board, an industry
association. "It will come, but in the short term we have to go through
a desert."

Much of the European biodiesel industry is working under its capacity,
Garofalo said, although no precise figures are available.

Biodiesel sales in the biggest consuming country, Germany, have fallen
dramatically this year after Berlin actually started taxing biofuels at
a time when the EU wants to promote green fuel consumption.
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Medium-term prospects appeared excellent following the decision by EU
leaders on March 9 for a strategic cut in greenhouse gases by using more
renewable energy.

But several important countries including Britain, Italy and Spain have
not fully implemented past promises to raise biofuel use, Garofalo said.
Germany's biofuel tax showed the country was putting financial
considerations above the environment, he added.

"Biodiesel is suffering from overcapacity because it is much easier to
build production plants than it is to pass legislation," Garofalo said.
"If there is no legislative support on taxation or binding targets,
there is no real market for biodiesel."

Biodiesel is more expensive to produce than diesel from fossil fuels,
and it needs tax breaks or a legal requirement to blend it with fossil
fuels at oil refineries to encourage its use.

Germany's biodiesel industry is facing a crisis, with sales at gas pumps
down by about 30 to 40 percent compared with last December, said Petra
Sprick, chief executive of the biofuels industry association Verband
Deutscher Betoningenieure, or VDB.

"Sales in the petrol station market have collapsed this year," she said.
"Our price attraction has gone."

Germany is the EU's largest biodiesel producer, with production capacity
rising to 3.2 million tons in 2006 from 2 million tons in 2005.

But the German government said it could not afford the loss of revenues
as drivers switched from regular diesel, which is heavily taxed, and
Berlin started taxing biodiesel in August 2006. For a time, high fossil
fuel prices cushioned the effect of the new tax, but falling fossil fuel
prices mean drivers now have no incentive to buy biodiesel.

Because vehicles consume more biodiesel than fossil fuels and need more
engine overhauls, biodiesel must be cheaper, she said.

"If the government further raises taxes on biodiesel in 2008 as it
plans, the whole industry will close down," she said. "This would be a
tragedy at a time we need biofuels to cut greenhouse gas."

High prices for rapeseed oil, the main component of biodiesel in
Germany, mean that biodiesel is being produced at a loss, she said.

Germany had introduced compulsory blending of biodiesel with fossil
fuels from January, but this is only expected to generate demand for 1.5
million tons annually.

German production is being cut and the first biodiesel refinery in the
country, BioWerk Kleisthohe, has actually stopped production at its
6,500-ton-a- year plant.

"We just cannot sell any biodiesel this year," said BioWerk's chief
executive, Thomas Vahle. "The new tax means it is just not competitive."

"I just do not understand the politicians," he added. "They say it is so
important to stop global warming and then introduce a tax to stop me
selling my biodiesel, which protects the environment."

Shares in German biodiesel companies have fallen this year as the
problems became apparent. One producer, Verbio, issued a profit warning
on Monday because of low sales and high costs, causing its share price
to fall 40 percent at one point.

On Thursday, Verbio's shares closed up 12 cents, or 1.7 percent, at
€7.04, or $9.38. The shares were issued in October at €14.50.

Biodiesel producers in Britain also have problems. The largest British
producer, Biofuels, announced this month that due to unfavorable market
conditions it had restricted production to 25 percent of capacity in
January and February and output would remain low for the immediate future.

The company, which operates a 250,000-ton-a-year plant in north England,
has seen its stock price fall to around 15 pence, or $.30, compared with
more than 200 pence in May last year.

Another key producer, D1 Oils, has also said it is operating below
capacity due to difficult market conditions.

Many in the sector were disappointed that Gordon Brown, the British
chancellor of the Exchequer, did not improve incentives in a budget
introduced Wednesday.

Britain is phasing in a rule mandating that from April 2008, biofuels
must make up at least 2.5 percent of oil company sales.

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