Biofuel subsidies hurts tall oil - consultant

25 September 2007 23:07  [Source: ICIS news]

SAN DIEGO, California (ICIS news)--Biofuel subsidies in the US and Europe are challenging feedstock supply and profitability of both regions' tall oil industry, a consultant said on Tuesday.

“It seems a shame that we, an original green industry, could be forced out by another green industry through tax payers’ money,” said Nelson Lawson of Lawson Consulting.

Crude tall oil (CTO), a byproduct of the pulp and paper mill industry, is being burned as fuel in order to recover carbon-dioxide credits.

Others are considering using CTO to produce biodiesel, Lawson said at the Pine Chemicals Association (PCA) International Conference in San Diego.

“Biodiesel, where subsidies have now grown to about $2bn (€1.4bn) in the US, is an uneconomical way to improve the environment,” said Lawson. “The industry needs to discourage any subsidies and tax credits that encourage the divergence of our key raw material, CTO, to biofuels.”

The oleochemical industry is also facing the same challenges, with ConocoPhillips and other petrochemical companies planning to add tallow to a subsidised diesel fuel. Tallow and CTO are both inelastic commodity byproducts, Nelson noted.

“Prices for tallow already doubled over the past year mostly because of the effects of biodiesel,” said Nelson. 

“Akzo Nobel, a major tallow user, already mentioned that if prices rise too high, it will revert to using cheaper petroleum feedstock. And that’s how our tax money is being used to discourage the use of petroleum,” he added.

Nelson said CTO production, at 1m short tons in the US and 550,000 tons in Europe, is much smaller when compared with fats and oils.

“However, CTO is more valuable for paper mills to burn in order to recover the carbon-dioxide credits. This will surely lead to an increase in CTO price to the detriment of our industry,” he said.

In Europe, several pulp mills are being encouraged to burn their CTO product as a fuel in order to reduce their greenhouse gas burden under the emissions trading scheme (ETS).

According to HARRPA, the European association for hydrocarbon resins, rosin resins and pine chemicals producers, the European carbon dioxide credits will increase the cost of CTO by $110/ton.

“HARRPA expects that the extra costs will increase as the cost of CO2 credits rise,” said Nelson.

“At the current CO2 cost of €30/ton, the extra costs calculates to €45m, which represents more than 10% of the European tall oil industry’s turnover. These extra costs lead to a reduction in profitability of the CTO processors in Europe according to HARRPA,” he added.

Members of HARRPA are lobbying to eliminate CO2 credits and also promote the use of tall oil pitch, a byproduct of CTO fractionation, as fuel feedstock instead of directly burning CTO.

In the US, Nelson said the PCA is working with the Soap and Detergent Association to try and eliminate direct and indirect subsidies to using CTO for biofuels.

The three-day conference ends on Tuesday.

($1.00 = €0.71)
By: Doris de Guzman
+1 713 525 2653

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