Sector faces hostility from competitors and campaigners
- The Guardian,
- Tuesday April 1 2008
It was barely 18 months ago that the British biofuels industry was surfing on a wave of euphoria. There were almost weekly announcements from companies big and small that they were going to invest heavily in a sector that promised to play an important role in the battle against global warming.
On April 15, the sector is to be given an even bigger boost when the government introduces its Renewable Transport Fuels Obligation (RTFO) that requires the station forecourt to supply at least 2.5% a first, later 5%, of its petrol and diesel from plant-based materials at a time when oil prices have soared.
But instead of widespread glee, the domestic green fuels sector is in gloom, amid a flood of cheap imports from America. Subsidised US biofuels are threatening to wipe out UK capacity. Meanwhile, opposition grows from environmentalists and independent scientists who fear that biofuels could make climate change worse, not better.
There are fears that carbon-absorbing rainforest in countries such as Brazil is being cut down to provide land for fuel crops such as soya and palm and that biofuels crops are displacing land use for food and forcing up the price of staples. The price of wheat has doubled in the past 12 months.
Ruth Kelly, the transport minister, recently commissioned the new Renewable Fuels Agency to undertake a review of biofuels. A group of seven campaign groups, including Greenpeace and Oxfam, have called for her to postpone introduction of the RTFO until the benefits had been finally clarified.
The Renewable Energy Association says its members are deeply frustrated by the opposition from green activists. "It does seem to me to be potentially an own goal by the environment movement," a spokeswoman said.
"The UK industry has taken on board real concerns and been leading internationally on sustainability and CO2 standards - which are clearly essential elsewhere.
"There are no easy answers in transport and we don't pretend biofuels can be anything more than part of the answer. But the danger now is we are destabilising a technology at early stages of development with real future potential."
Karl Watkin, the founder and former chairman of D1 Oils, one of the pioneers of the British biofuels sector, resigned his position on the board of the company recently and issued his own broadside at NGOs, governments and the City. He said they were failing to support those who, like him, have been developing sustainable fuels - in D1's case from the jatropha plant.
"Over the past 12 months I have become increasingly frustrated by the inability of the investment community, governments and NGOs to differentiate D1's strategy from that of the suppliers of palm, soya and rapeseed whose biodiesel products have been well documented as being environmentally unsustainable," he said.
Another major British biofuels investor who asked not to be named said postponing the introduction of the RTFO at this stage would be disastrous. "People like us will not invest if there is no constancy of purpose and policy in Britain, while the global trade in biofuels will just go on regardless of what happens here," he said.
"No one believes that it is good to use rainforests or other delicate land to produce biofuels but there is a risk of the good being thrown out with the bad if we put a halt to the RTFO now."
Phil New, BP's global head of biofuels, agrees: "Ditching the RTFO would clearly make the UK a much more challenging place to invest in both biofuels manufacturing and research capacity."
D1 and others are also concerned about US biodiesel with its 11p-a-litre subsidy to undercut British products.
Around 1m tonnes of US B99 fuel, biodiesel with 1% petroleum diesel, is exported to Europe each year. Critics believe that some of the B99 is being made using product grown with subsidies in locations such as Argentina.
It has also become clear that it is not only US firms that are benefiting, but European firms are also using "splash and dash" operations to take biofuels over to America to blend them with small amounts of US biodiesel or even fossil fuels and bring them straight back to Britain and the Continent.
Low shipping costs make it worthwhile for those willing to exploit this trade, which is perfectly legal but environmentally damaging. Around 10% of the 1m tonnes of US imports that came into Europe last year is believed to come from splash and dash operations.
Ian Waller, a biofuels consultant from the FiveBarGate consultancy in the north-east of England, said: "My real concern about all this is that it undermines all the work we have been doing in the UK around sustainability. B99 is of completely unknown provenance. A lot of the 1m tonnes of biodiesel being exported out of America to Europe every year is not even locally produced. It could be palm oil from Indonesia or soya from Argentina."
Waller believes that some of those who were trying to produce sustainable biodiesel in Britain have turned to using B99 or other cheap foreign feedstocks in a bid to stay in business. But other traders are clearly only too happy to feed growing demand with US imports or "splash and dash" operations.
Watkin said he had raised the problems of B99 with the prime minister, Gordon Brown, when they were on a trade delegation to China. Pointing out that biodiesel gets a 20% sales subsidy in Britain compared with fossil fuels, he added: "Everyone agrees that this activity is all wrong but no one seems willing to really do anything about it. The reality is, governments have got themselves into a position where they are now supporting subsidies, not the fight against climate change."
Explainer: Splash and dash
For Europe's biodiesel producers, "splash and dash" is the salt being rubbed into what they see as the already open wound of US subsidies.
The industry reckons that around 1m tonnes a year of biodiesel is being imported from the US on the back of generous US subsidies. According to EU industry sources it would cost a European producer $1,625 in soya and $150 in production costs to make one tonne of biodiesel, a total of $1,775. In contrast, they say subsidised biodiesel imported from the US costs $1,400 a tonne. As a result European biodiesel producers are being forced into mothballing their capacity.
Biodiesel is also being sent to the US to have a tiny amount of mineral (conventional) diesel added, simply to make it qualify for the US subsidies before it is shipped to Europe. By topping up, for example, a 10m gallon tanker of biodiesel with about 10,000 gallons of mineral diesel in a US port, shippers qualify for the blender's tax credit, worth a dollar a gallon for the whole load - or $10m.
Industry sources say that about 10% of imports from the US are accounted for by such splash and dash operations. According to one, splash and dash could have undermined European prices by 10-15%.