How To Save The Biodiesel

Industry

Government dithering and high commodity prices make for a tough environment.

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BURLINGAME, Calif.–Can the biodiesel industry be saved? It’s remotely possible–but not unless the government steps in to jump-start the besieged market.

Biodiesel, a low-carbon fuel usually made with soy, palm or canola oil, first grabbed the spotlight a few years ago. That was when Congress started promoting the green fuel as a replacement for traditional diesel. Private-equity firms started pumping hundreds of millions of dollars into companies like Seattle’s Imperium Renewables and Green Earth Fuels, of Houston, hoping to get in on the ground floor of a nascent market.

Federal government mandates and tax breaks, driven by the broader goal of fighting pollution and cutting reliance on foreign oil, were supposed to create a mass market, even though biodiesel was often more expensive than regular diesel fuel.

It hasn’t happened. Starting in mid-2007, prices of the canola and soy oils used to make biodiesel soared. That pushed up the cost of the green fuel and wounded producers’ bottom lines. With oil peaking at $147 a barrel last summer, biodiesel still made economic sense for some customers, since regular diesel prices climbed to an average $4.77 a gallon. Biodiesel didn’t look bad by comparison.

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But then petroleum prices tanked. That widened the price gap and made the green option uneconomical for even the most die-hard environmentalists. Commodity prices have since come down, but not enough to bridge the gap. The recession has damped demand for energy overall and made it nearly impossible for fledgling clean-fuel ventures, including biodiesel makers, to get credit to expand.

“The market conditions are very, very tough right now,” says Joe Jobe, head of the National Biodiesel Board in Jefferson City, Mo. Of the nation’s 176 biodiesel operators, “it’s very difficult to say how many of them are still operating.”

The industry’s woes illustrate the hazards of building a business around the prices of two volatile, and often unrelated, commodities–in this case, raw vegetable oil and petroleum. They also show that not all green fuels are created equal. Lots of environmentalists have hopped off the biodiesel bandwagon, charging that increased demand for commodities like palm oil will lead to deforestation and, in turn, even more greenhouse-gas emissions from countries like Malaysia and Indonesia.

Sourced and published by Henry Sapiecha 16th April 2009

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