Europe races to produce more 'green' fuel

by World Grain Staff
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by Chris Lyddon

Europe is ratcheting up biodiesel production, with production capacity having nearly doubled in the past 12 months. Turning rapeseed (canola) oil into fuel for the diesel cars many Europeans prefer seems a simple way to cut emissions and boost the rural economy. But some think the level of production required by E.U. law could be too much for Europe’s farmers.

Under the E.U.’s Biofuels Directive of 2003, the member states have to achieve an inclusion rate of 2% renewable fuel by 2005 and 5.75% by 2010. They also have to report to the European Commission on how they are going about achieving it.

Germany’s third report showed a record of success. "Germany achieved well in excess of the goal of increasing the proportion of biofuels to 2% of total fuel consumption in 2005, with biofuels accounting for 3.75% of total fuel consumption in relation to energy content," it said. "For 2010, Germany is aiming at biogenic fuels making up at least 5.75% of total fuel consumption in energy terms."

The U.K. has put in place its Renewable Transport Fuel Obligation (RTFO), under which transport fuel suppliers have to ensure that 5% of their fuel comes from renewable sources by the 2010-11 financial year. The British government blamed E.U. standards for fuel, which set a 5% limit on the amount of biofuel that can be used, for the difference. "Setting a legal obligation on fuel suppliers above the legal limit for ordinary road fuels (and suitable for ordinary vehicles), is inherently problematic," British officials told the E.U.

This means Britain won’t actually achieve the target. "In terms of energy content, we anticipate the U.K. RTFO targets would achieve something like 2% of total fuel sales in 2008-09, 2.8% in 2009-10 and 3.5% in 2010-11," the British government said.

According to the European Biodiesel Board (EBB), which is a grouping of five major producers that promote the use of biodiesel in the E.U., Germany is by far the biggest producer. Its production capacity for 2006 is 2.68 million tonnes, up from 1.66 million in 2005. Italy comes next at 857,000 tonnes, up from 396,000, meaning it has overtaken France, which has a 2006 capacity of 775,000 tonnes compared with 492,000 tonnes in 2005.

The U.K. was a late starter, but according to the EBB it has 445,000 tonnes of production capacity in place, compared with just 51,000 in 2005. Spain is another country which has accelerated production. In 2006, its capacity is 224,000 tonnes, compared with 73,000 in 2005.

Total European biodiesel capacity in 2006 is 6.06 million tonnes, compared with 3.18 million in 2005.

This increased production capacity means a lot of demand for rapeseed. "Historically, biodiesel in Europe has been made from rape oil," explained Josh Dadd of Increment, a rural business consulting firm. "Rape oil is at a huge premium to soy and palm oil compared with what used to be the case," he said. "You’ve got a market that’s come out of nowhere."

He reckoned Europe is going to have to look at other feedstocks for its biodiesel plants. "The E.U. is considering relaxing the biodiesel standards so as to open the market to other oils such as palm and soy oil," Dadd said. "They’ve realized that they aren’t going to be able to supply the amounts they need with rape oil."

There are problems with imports of rape from Canada, which might be an obvious source, because of Europe’s objection to genetically modified crops. "You can’t use GM material," he said. "That means you can’t import GM canola from Canada, because you have the problem of what to do with the meal."

However, there is a way around that, he said: "What you can do is import the oil from Canada — that way no GM protein gets into Europe."

Another problem he identified was what to do with the byproducts. "Glycerol, for example, which is used by the cosmetics industry, has come down in price sharply because it is produced as a byproduct of making biodiesel," he said.

Then there are the ramifications for the food market. "Rape oil is so expensive now, the food industry has started to switch out of rape oil into other oils," Dadd said. "If the market is opened up, it could come down again, but it’s not likely to come down to the levels it was at before the growth in the biodiesel market. What’s more likely is that the other oils will increase in price and they’ll meet somewhere in the middle."

Ian Munnery, commercial manager of United Oilseeds, a farmer-owned group that markets oilseeds in the U.K., said the growth of biodiesel was extremely good news for the industry. "In terms of the oil supply, there isn’t a huge amount around while we are producing for the huge demand," he said. "Rape is technically very good. It’s probably the best oil for diesel, but it’s become expensive."

He was also concerned about how Germany’s decision to run down generous tax breaks for producing biodiesel from rapeseed could affect the market. "As the tax tapers off, they could start looking for other sources of feedstock," he said.

Europe’s capacity to produce rapeseed is distinctly limited. "The effective maximum is a one-in-three rotation," Munnery explained. "You’re not going to see yields rise dramatically beyond 3.2 to 3.3 tonnes a hectare. With an oil yield of around 40%, the U.K.’s crop of around 2 million tonnes of rapeseed could be processed into 800,000 or 900,000 tonnes of oil. To fulfill its obligation, the U.K. needs 2.5 million tonnes of rapeseed oil. "You’re not going to triple the acreage of rape," he said.

The Germans are more optimistic. According to the German oilseeds promotion body, UFOP, Germany produced 5 million tonnes of rapeseed from 1.4 million hectares, or 12% of its available arable land in 2005. From the 5 million tonnes of rapeseed, 2 million tonnes of rapeseed oil was produced.

Germanyalsoimported400,000tonnes of oil equivalent and used 600,000 tonnes of food. That meant 1.8 million tonnes of rape oil was available for biodiesel. Add to that some 200,000 tonnes of imported soy and palm oil, and Germany had 2 million tonnes of biodiesel. With total German diesel consumption at 28.5 million tonnes, biodiesel’s share of the market was already 7%.

UFOP’s prediction for 2010 to 2015 allots 1.8 million hectares for growing rapeseed, or 15% of the total arable area. That means 7 million tonnes of rapeseed yielding 2.8 million tonnes of oil. Add 800,000 tonnes of imports and take away 600,000 tonnes for food and they come up with 3 million tonnes of rapeseed oil for biodiesel. Imports of 1 million tonnes of soy and palm oil bring the total available for biodiesel to 4 million tonnes. With diesel consumption around 30 million tonnes, biodiesel would have 13% of the market.

UFOP puts demand for diesel fuel in the E.U. at 165 million tonnes in 2010. To achieve the 5.75% target, Europe would need around 11 million tonnes of biodiesel. That, according to UFOP, would mean 7 or 8 million hectares of agricultural land would have to be used to produce rape for biodiesel, depending on whether you think European farmers can manage 1.6 or just 1.3 tonnes of oil a hectare.

In 2005, the total area of rapeseed planted in the E.U.-25 countries was around 4.6 million hectares. With the potential area for 2010 estimated at 5.5 to 6.5 million hectares and the demand for oil for food put at 2.8 million tonnes, UFOP reckons that the E.U. can cover 75% of its biodiesel needs from its rape crop.

It also points out that some of the shortfall could be covered from sunflower production. Europe can also import, and UFOP notes that Germany is already importing rapeseed oil from Canada and China for its biodiesel production, freeing non-GM rapeseed from Europe to go into the food chain.

There are more potential sources for biodiesel for Europe. Palm oil is now far cheaper than rape oil. The problem is that it solidifies, but the technical difficulties have been overcome and now a low-pourpoint biodiesel, suitable for use at temperatures down to minus 21 degrees C, can be produced. It leaves European oilseed producers wondering how long the bonanza can last and also has some environmental campaigners unhappy about the green credentials of biodiesel.

Andrew Boswell, a Green Party councilor in the British city of Norwich, put the party’s view in a letter to the British Independent newspaper. "The current European Biofuels Directive is driving a huge expansion of biofuels exports from rainforest nations like Brazil, Indonesia and Malaysia," he said. "Millions of hectares of rainforest are being destroyed to grow fuel for our cars. The greenhouse gas emissions from the deforestation and peat destruction linked to those biofuels are almost certainly far higher than any savings we can make from using less petrol or diesel. Far from reducing emissions, current E.U. policy is exporting them to developing nations." WG

Chris Lyddon is World Grain’s European editor. He may be contacted at: