With gloom surrounding the global financial sector over the last couple of years -  it is refreshing to see a large capital project success story, and one on the biofuels front to boot. The Ensus plant in Teesside UK - the largest single bioethanol facility in Europe -  is in the process of starting up. The plant will utilise more than 1 million tons per year of wheat as a feedstock, producing more than 330kt per year each of ethanol and co-products of animal feed and bottled CO₂.

Around £300 million sterling was raised for financing the project, an impressive achievement under difficult circumstances. I am pleased to have been a part of it commercially in the early phases.  Congratulations to the team that persevered and delivered the project. 

Here's a thought: If a country with the (small) size and (large) population of the UK can be a net exporter of grain - to the tune of 2 million tons per year, facilitating the construction of world-scale biofuel facilities profitably, whilst remainiing self sufficient on the food front - then surely there are opportunities in many other countries.

The Ensus project demonstrates that well organised, integrated supply chains as well as mechanised productive farming that maximises the use of available land, and production economies of scale, can be successful. Government and legislated mandates on biofuel inclusion percentages into fuels don't hurt either.. That however (as far as i understand) was the limit of the UK government's involvement in this project, which is in itself also refreshing.  

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There is no doubt that the US biodiesel industry, by all accounts successful and growing a few years ago, has encountered structural problems. 

The global economic crisis has obviously played it's part, but there are two additional major factors that have contributed to an accelerated slide in the fortunes of this industry:

One factor is indirect and subtle feedstock pricing manipulation by certain large investment banks, and vegetable oil processors that both simultaneously invested in upstream veg oils and downstream biodiesel production facilities. This was employed as a measure to control supply chains and markets as well as to hedge and limit competition. The main driver for many of these commercial market entrants was, and still is, higher vegetable oil prices. Even though biodiesel is known to reduce carbon emissions by 60% compared with regular diesel, climate change and carbon reduction is still secondary to short term profit for these players. Their actions in the market have demonstrated that they are not interested in building a sustainable biodiesel industry. Independent biodiesel producers without access to large amounts of working capital and sophisticated risk management resources have found it difficult to survive in an increasingly volatile market where traders were the only ones making money. In this kind of environment traders don't create real value, oftentimes they destroy it. The traders rely on banks and working capital facilities to play - and as we know this pool of cash and credit dissappeared. 

What has largely assisted in overcoming these albeit, indirect and disingenious attempts to scupper the biodiesel market in the US has been the $1 per gallon blending credit, provided by the US government that allowed biodiesel to be exported as B99 to Europe. Notwithstanding freight charges and previous import duties of 6.5%, European biodiesel buyers and traders were able to procure US biodiesel imports into Europe at significantly discounted rates compared with locally produced EU biodiesel. The US subsidy coupled with the European country subsidies ensured that there was sufficient demand and profit in the supply chain to enable the survival of most US biodiesel refineries with an ability to manufacture quality products and market these directly.

From 2007, and even though EU biodiesel inclusion targets were (and still are) far from being met, the European biodiesel producers cried foul of the "cheap US imports" and blamed these for most of their economic difficulties. With significant lobbying in Brussels and and at the EU Commission - hefty import tariffs have been imposed on B99 biodiesel from the US, and the market for US exports to Europe has now essentially evaporated.

This effective ban on B99 exports to Europe is a second major factor for the US biodiesel industry falling on hard times. The generous US subsidy for locally produced biodiesel which was intended to stimulate US biodiesel production has therefore largely been unsuccessful. This is unfortunate since the US government subsidy was actually making biodiesel cheaper for Europeans. However, the benefits of the lower priced imported US product was not passed onto the European motorists. By blending this product into the larger EU diesel and biodiesel pools, the profit was essentially gobbled up by the traders and the European buyers at the large oil companies - instead of being passed on to their customers.  Creating a sustainable market in Europe for less expensive biodiesel would have simultaneously increased the global uptake of biodiesel. This appears, for now, to have failed.  

Therein lies the rub: Carbon emission reduction and climate change is a global problem, and the view taken by the EU Commission - which in effect has turned down US monetary support, benefitting EU motorists and citizens - appears extremely shortsighted and self serving in favor of the EU lobbyists. The EU decision on B99 could easily be reversed. 

Policing by the EU Commission of it's own biofuel supply chains, buying practices and following the money trail - to ensure fair distribution of profits, including to their motorists, would be an ingenious step in the right direction. Buyers ultimately set and accept the price for "dumped" products. 

In the meantime, the US Administration could look closely at the structure of their own Biodiesel industry and limit unfair and anti-competitive behaviours in the integrated veg oil supply chain structures. In short the US Biodiesel industry needs its own voice in Washington. Soy beans do not equal biodiesel. 

One positive that can be taken out of the negatives is the realization that better, non-food based and sustainable feedstocks for biofuels such as algae, waste oil and biomass are essential. There has been renewed focus on these areas lately, but large scale commercialization is still years away. Let's hope the biofuels industry is able in the meantime to survive it's harsh challenges by inclusive, responsible and sustainable actions on the part of the oil industry, financial institutions and governments.   

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First of all, many thanks for your comments on the African Biodiesel question in last weeks' topic.

Today news has filtered out from the G8 summit in Italy - whereby consensus amongst the G8 leaders was apparently achieved in respect of emission targets. A target of 80% reduction by 2050. Fantastic, no not really.  

The problem is that by 2050 there is a good chance this planet will be totally messed up. In 2050 all the G8 leaders will be long dead, and their children who are not geriatrics would have joined them. This 2050 target which is without clear specifics is therefore just passing the buck to future generations. By the time they are able to act - its going to be too late. The G8 are apparently now going to ask the developing nations in the next couple of days, notably the poor(er) G5 including South Africa, India, Brazil and the like, to do more to combat climate change in their economies and make the picture "fair" and less onerous on the G8. Given the G8's future fiction stretch target of 80% by 2050, and their contribution to climate change so far, the G5 would be well within their rights telling to G8 where to go to. 

The self serving arrogance of the G8 club is truly astounding, they continue to put their economy's (and their votes) first. That's how they got into their club in the first place. The big question is - how do we, Joe and Mary Bloggs - turn that around for the greater good of the planet? 

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