INSIGHT: Questions need answers on biofuels

22 August 2007 14:52  [Source: ICIS news]

By Simon Robinson


LONDON (ICIS news)--Recent news that the UN's Food and Agriculture Organization is calling for a high-level meeting next June to try and lay down rules for the international trade in biofuels comes at an interesting time.


According to the Financial Times, the FAO wants the EU and the US to lower trade barriers to ethanol imports, establish a system for bioenergy environmental standards and give more micro credit to farmers in the developing world to help them jump on the biofuels bandwagon.


Some of this is happening; the EU is looking at a way of rating the green credentials of biofuel imports. And some of it is not. On 9 July, the US senate voted not to reduce the 54c/gal tariff protecting the US ethanol industry from imports from Brazil.


There are some fundamental questions that the world biofuel industry needs to find answers to, with the most pressing being where the plants should be located. Close to advantaged sources of feedstock in the tropics or close to the market?


One suggestion might be that the biofuels should be grown and made in the warmer sunnier climates where plants can grow quickly and labour is cheap. The basis for this stems from recent news reports.


During the past few weeks we have seen pump prices for gasoline and diesel at very high levels as oil came fairly close to its record price of around $76/bbl in late July, so it should be a good time for biodiesel and ethanol producers. During that month there were two firms in the news in the UK.


Biofuels Corp left the UK's Alternative Investment Market and has been trading as Earls Nook from 2 August. “Up until September 2006, biodiesel margins were relatively strong and underpinned future business plans," it said in a June statement.


"However, recent business conditions have made it very difficult for the company. The combination of higher vegetable oil prices and lower biodiesel prices have together meant that the company has been unable to make any profits from the production of biodiesel.”


The second company is Renewable Power and Light. This firm is currently sueing Safari, a company contracted to sell its palm oil at a fixed price. Renewable Power and Light contends that Safari has not done so and is trying to sell the palm oil elsewhere at a higher price.


These examples highlight the need for two essential developments in the biofuels market.


First, the industry needs to become more completely integrated from plant to pump. This would allow it to do what the oil industry does, and capture the value in biofuels anywhere along the production chain.


Making biofuels where they are grown could help this. To attract this business, the countries where this could happen will have to overcome the predjudice against them and show that rights to intellectual property, real property and due process are all hardwired into their civil societies.


Second, tariff barriers need to be lowered to allow for proper competition. The issue is wide-ranging - Biofuels Corp sums it up as "having an effect on European biodiesel producers in general.”

By: Simon Robinson
+44 20 8652 3214

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