I’m a fierce critic of biofuels, but I’ve always had a soft spot for small, region-based biodiesel projects that create fuel from local resources, providing jobs in the bargain. (I proudly ran Emily Gertz’s feature on the topic in our 2006 biofuels series.)

The income from such projects remains within communities, rippling around and building wealth. Rather than being just another conduit for transferring cash from communities into the pockets of global investors, fuel becomes an engine for real economic development. Insofar as they involve community members in making and distributing fuel — from the feedstock to the gas tank — these biodiesel projects educate people that the liquid that runs their car is a precious, powerful substance that comes from real resources.

However, the global rush to jack up biofuel production, led by government mandates in the U.S. and Europe, has transformed the entire industry and essentially taken over community-based projects. That’s the message of an extraordinary recent blog post by Piedmont Biofuels, a grassroots project based in the North Carolina’s Triangle (Raleigh, Durham, Chapel Hill) area.

(Full disclosure: I know some of the people involved in the project. Hat tip to Spaceshaper for pointing me to the post.)

Piedmont Biofuels began as a grassroots cooperative transforming waste grease into biodiesel for member-owners. Buoyed by their success, the group opened an industrial-scale facility churning out fuel from whatever feedstock they could get their hands on, marketed to whomever would buy it. (They still run a small-scale cooperative facility based on locally collected waste oil.)

The post I’ve linked to above details Piedmont’s wild ride since opening the new facility. Essentially, Piedmont makes money when it can buy feedstock in the “teens per pound” (i.e., 10-20 cents per pound), but its profit margins disappear when prices rise above that level.

In case after case, the blog post reveals, the company chose a feedstock, made money for a time, and saw the feedstock’s price jump and profits drop. The post also expresses management’s ambivalence toward the stuff they use to make biodiesel.

When we fired up our Industrial facility, virgin soybean oil was in the teens. Soybean oil is easy to work with, it is processed locally in Raleigh and Fayetteville, and North Carolina has over a million acres of soybeans under cultivation.

Great, but …

If we forgot about our aversion to genetically modified organisms, or about the effect of monocrops on the environment — and if we looked the other way whenever we see the massive petroleum subsidy which is embedded into conventional agriculture — local soy oil looked pretty good.

But then the price of soybeans skyrocketed, driven up by the ethanol boom. (In response to high corn prices, farmers scrambled to plant corn instead of soy, and less soy meant higher prices).

Next Piedmont settled on chicken fat, bought in the “teens per pound” from North Carolina’s booming (and ecologically and socially disastrous) industrial-poultry industry. There were kinks in the conversion from soy to chicken fat.

[Switching from soy to chicken fat] is easier said than done. The reality is that we re-plumbed portions of the plant, struggled with declining yields, re-tooled our recipe, made modifications in the lab, and figured it out. We are technically proud of that claim.

Great, but …

If we forget about our contempt for meat as a converter of energy, or our distaste for the way conventional chicken meat is produced — from the bird to the worker to the consumer — local chicken looks pretty good. Not to eat-but to transesterify.

But then chicken fat, too, jumped in price, and the group came full circle to where it started: waste vegetable grease. But to make biodiesel on industrial scale, waste veggie grease has to be procured on an industrial scale — not from local fast food joints.

Again, conversion was a headache:

While we were waving goodbye to chicken, we began re-tooling our operation over to waste vegetable oil. That’s not trivial. New tanks, a new heat source, a new recipe, new processes to put in place — but all in the realm of the possible.We started buying loads in Virginia, and D.C., and struck up relationships with waste vegetable oil sources up and down the eastern seaboard.

While in the midst of that conversion, something crazy happened. Buyers from Europe “came knocking,” with an offer that Piedmont Biofuels couldn’t refuse: essentially, a contract arrangement, where the buyer owns the feedstock and the fuel that emerges, paying the manufacturer a fee for producing. The arrangement really isn’t so different from the contracts poultry farmers sign with big packers like Tyson. The Piedmont folks signed on — ambivalently.

This was a stunner. While it was long way away from what we set out to accomplish, it appeared to offer us financial stability, and isolate us from the fickle feedstock markets. The same ones which have been inviting us into the thirties [per pound] and buffeting us about.

The plant is now producing exclusively for export to Europe, with chicken fat as the feedstock. (Again, Piedmont’s small coop plant still produces for the local market from local wast veggie oil). The arrangement works mainly because of the ever-falling dollar. “People shopping in euros today can handle higher priced feedstocks,” the blog author notes.

I admire the Piedmont folks for their honesty — and for this clear-eyed portrait of what has become of small-scale U.S. biodiesel production.

I can’t resist offering a commodity-chain analysis of Piedmont’s European deal. To meet their Kyoto commitments, the Europeans are buying “green” biodiesel that bolsters the profits of carbon-intensive U.S. meat giants like Tyson, et al. The Europeans are able to afford it because the ever-sinking dollar — brought low, largely, by the U.S. appetite for foreign oil.