Thursday, January 17, 2008

German Biodiesel Blunder

The biodiesel industry in Germany is in a state of collapse.

According to an article from Reuters, biodiesel production currently stands at 10% capacity in Germany. This collapse is attributed to an increase in taxes on biodiesel implemented on January 1. In late 2006, Germany started taxing biodiesel as the government said it could not afford to lose the large tax revenue from fossil diesel.

This development seems to compete with recent pushes to further promote biofuels throughout the EU. The Reuters article explains that many producers are disassembling plants and shipping parts overseas to the US and Canada. With this infrastructure slowly moving overseas, how will the EU supply it's increasing renewable fuels mandates? They could continue to import palm oil, or co-co oil, or [enter your choice of imported oil producing plant here]. But, the EU has already gotten a black eye from these practices and is now putting rules in place to ensure fuels meet minimum sustainability standards.

Either way, this development is quite amazing when one considers the history of the biodiesel industry in Germany. Despite all the success of the Germany biodiesel industry, the taxation is now destroying this once thriving industry. Is this bad policy being implemented by the Germans, or simply an indication of the absurd costs required for biodiesel production? In the US, producers can claim a massive subsidy for biodiesel of $0.01/gallon of biodiesel blended with petroleum diesel up to 99.9%. Without this gigantic subsidy, the domestic industry would crash. It is interesting to note that this subsidy is being abused to produce so-called "splash-and-dash" biodiesel.

Moving beyond "first-generation" biofuels (e.g. soy biodiesel, corn ethanol) is a necessary step towards realizing the development of more competitive and sustainable renewable fuels. Until further breakthroughs in algae production, cellulosic ethanol, renewable synthetic diesel (e.g. NExBTL), etc, are accomplished, the German biodiesel blunder could act as an omen of things to come in the biofuel world.

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