Unlike the U.S., European governments are cutting back on agrofuel goodies
European biodiesel makers have entered a rough patch.
The price for their main feedstock, rapeseed, has risen more than 50 percent since the beginning of the year. But the price of the final product, biodiesel, has plunged, because producers are churning out far more biodiesel than the market can absorb.
Similar conditions hold sway among U.S. ethanol makers: heightened corn prices combined with an ethanol glut. But U.S. producers are celebrating while their European counterparts exude gloom. Why the difference?
That’s an easy one. In the U.S., the government is playing Santa Claus, while in Europe, governments are responding to industry demands for more goodies with a cold stare.
The energy bill that President Bush recently signed into law will essentially eliminate the glut conditions that now hold sway within the industry. In 2007, makers struggled to market the 7 billion gallons it produced. With an extra two-to-three billion gallons of supply coming online in 2008, the industry was bracing for a crushing glut, Dow Jones reports.
But the energy bill mandate that gasoline blenders use at least 9 billion gallons in 2008, allowing ethanol makers like Archer Daniels Midland — and their shareholders — to breathe easy.
The day after Christmas, Wall Street powerhouse Citigroup gifted the industry with a bullish report. "We firmly believe the new energy bill will serve as a significant catalyst to the ethanol industry," the firm declared.
Over in Europe, where biodiesel, not ethanol, is the fad fuel, governments are singing a different tune: they’re staying on the sidelines while the biofuel industry flounders.
A Thursday Wall Street Journal article tells the story. "In 2006, when commodity prices were low and margins were fat, Germany decided to trim the tax breaks it offers to biodiesel producers," the Journal reports. "Earlier this year, France raised taxes on biodiesel. Now that producers are in trouble, governments aren’t giving the tax breaks back."
Why? If I’m understanding the Journal story correctly, it’s partly because governments are actually listening to green critiques of agrofuel:
Green lobbies are also turning against biodiesel. They now say that growing crops for biodiesel puts too much pressure on land and food prices. In Europe, 80% of biodiesel is made from rapeseed, a distinctive, yellow-flowered crop. Environmental groups also oppose imported palm-oil-based biodiesel from countries such as Malaysia and Indonesia, saying the rush to grow more oil palm trees is causing deforestation.
Wow. Many of us are making similar arguments here, and the government goodies for agrofuel just keep a-coming.