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Evolution of the Biofuels Revolution

The following is an excerpt from Biodiesel: Growing a New Energy Economy (revised edition), by Greg Pahl, which is forthcoming from Chelsea Green.

What a difference four years make. In 2004, when I was researching and writing the first edition of Biodiesel: Growing a New Energy Economy, the biodiesel industry was on a roll.

In Europe, the global leader in biodiesel production, most countries were investing heavily into promoting and encouraging the industry with a broad range of tax and other benefits, biodiesel refinery construction was proceeding at a breakneck pace, profits were generally high, and the mood was ebullient.

In the United States, the industry had finally begun to enter the mainstream of public awareness, plant construction was ramping up, federal and state vehicle fleets were beginning to use significant quantities of biodiesel blends, public biodiesel pumps were starting to spread across the nation, and the industry finally succeeded in getting its landmark blending tax credit passed by Congress.

In other countries around the world, biodiesel was just beginning to show up on the radar screen, with early initiatives taking shape in Africa, Asia, Australia, and South America. In general, most environmental groups and nongovernmental organizations were supportive of the industry.

In 2008, there is a very different picture. Beset by record high feedstock prices, enormous production overcapacity, vanishing tax breaks, less expensive imports, and declining public support, the European biodiesel industry is struggling. Despite years of concerted effort, the European Union uses less than two percent of non-fossil fuels in its transportation sector and is on track to miss meeting its ambitious biofuels targets in the years ahead. In just one year, since January 2007, the price of some biodiesel feedstock crops has doubled, driving the cost of biodiesel up nearly 50 percent to about $4.80 per gallon. While prices for petrodiesel have risen sharply too, by January 2008 it was only around $3.15 a gallon. This trend is at odds with conventional wisdom that higher petroleum prices make biofuels more competitive. In the United States, federal and state support for biodiesel remains strong, with a new package of tax credits and other incentives recently passed into law. But the U.S. biodiesel industry has been struggling with the same high feedstock and overcapacity issues that their European competitors are facing. And around the world, many biodiesel refineries (even new ones) are operating at reduced output or have closed to try to minimize their losses. And as food prices have increased around the globe, at least partly in response to strong demand for biofuel feedstocks, concerns about food versus fuel have multiplied as well, causing a number of environmental groups and NGOs to begin to turn against biofuels, or at least some biofuels.

As a result of this dramatic shift in the biodiesel landscape, in this revised edition of Biodiesel I present as balanced and accurate a picture of the biodiesel industry around the world as possible. That picture is definitely mixed and sometimes confusing, and it’s changing so fast it’s hard to keep it in proper focus. It’s probably best to consider this new edition to be a snapshot of the state of the industry as of early 2008, just as the first edition was a snapshot of the industry in 2004. At the moment, governmental and public support in Europe seems to be on the wane while support in the United States, Brazil, India, China, and other nations seems to be on the rise or at least holding steady. Many biodiesel industry observers view the current turmoil as a temporary situation, and that once supply and demand comes back into balance, the industry will be poised for further expansion. Others aren’t so sure. What is increasingly clear, however, is that if the industry is going to live up to its full potential it will have to rely on a new, “second generation” of inedible feedstocks that don’t compete directly with the food sector.

Finally, no responsible member of the industry has every claimed that biodiesel will solve all of our energy problems. It won’t. They also readily acknowledge that biodiesel is not perfect. Every fuel has its advantages and its disadvantages, and biodiesel is no exception. But since there are very few viable alternatives in the liquid transportation fuel sector aside from ethanol (which has its own set of problems and limitations), biodiesel is better than nothing.

The era of cheap petroleum is over, and as supplies tighten in the years ahead, biodiesel will at least offer some energy security as we try to adjust to this new reality. Along the way, biodiesel needs to find its niche in the broad range of renewable energy strategies that will be needed as we move deeper into the 21st century, and an increasingly uncertain future.

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