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Troubled biodiesel plants find market in Europe

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  • Troubled biodiesel plants find market in Europe

    Troubled biodiesel plants find market in Europe
    By PHILIP BRASHER • REGISTER WASHINGTON BUREAU • March 14, 2008
    Washington, D.C., — Struggling biodiesel producers have found a way to stay in business despite soaring production costs. They're putting their biodiesel on ships and sending it to Europe.

    It's economical to export biodiesel because U.S. taxpayers subsidize the fuel additive and it also benefits from tax incentives in Europe and the relative weakness of the dollar against the euro. The weak dollar makes U.S. products cheaper compared with European goods.
    "You have to look for every market you can find," said Bill Horan, who is chairman of Western Iowa Energy LLC, a Wall Lake biodiesel producer that lost $2.6 million in 2007 because of the high cost of soybean oil and other feedstocks.

    The Wall Lake plant has shipped biodiesel to European buyers through Ames-based Renewable Energy Group, which manages the plant and markets its biodiesel.

    <font color="blue">The United States shipped about 300 million gallons of biodiesel to Europe in 2007, a 10-fold increase from the year before, according to the European Commission. U.S. biodiesel production last year was estimated at 450 million gallons.</font id="blue">

    European biodiesel producers are threatening to file an anti-dumping case against the imported biodiesel, arguing that it is unfairly subsidized because of the $1-a-gallon U.S. tax credit. The case could result in new duties being imposed on the U.S. product.

    The imported biodiesel represents 15 percent to 20 percent of the European biodiesel market.

    <font color="blue">"What we are witnessing here is U.S. taxpayers effectively subsidizing European motorists to the tune of around $300 million last year," said John Bruton, the European Commission's chief U.S. representative.
    He said biodiesel trade "is a good thing, but that trade must be fair, not distorted by subsidies."</font id="blue">

    Under U.S. tax rules, exporters can qualify for the $1-a-gallon tax credit as long as they add a small amount of petroleum diesel before shipping it. In Europe, where fuel-efficient diesel cars outsell gasoline models, biodiesel blends benefit from tax breaks at the pump. The tax reductions differ according to the country.

    U.S. biodiesel plants are struggling to stay in business and operating at well below the industry's capacity. The price of soybean oil, the traditional feedstock for biodiesel, shot from 28 cents to 45 cents a pound during 2007, according to U.S. Department of Agriculture data. On Thursday, the price of soybean oil for May delivery was about 63 cents a pound on the Chicago Board of Trade.
    A newly passed energy law sets mandates for annual biodiesel use, but they don't kick in until 2009. The annual targets start at 500 million gallons next year and reach 1 billion gallons by 2012.

    Western Iowa Energy, which can produce 30 million gallons of biodiesel annually, has been operating at 75 percent of capacity, according to its annual report. Auditors warned that the plant may have to shut down temporarily or longer because of its precarious financial condition.
    The plant has reduced its production costs by substituting animal fat for some soybean oil. The fat is trucked to the plant from slaughterhouses in Storm Lake, Perry and elsewhere.

    Another biodiesel producer affiliated with the Renewable Energy Group, Central Iowa Energy LLC of Newton, reported losing $2.5 million during the fourth quarter of 2007. But in the quarterly report, the Newton producer said it expected to "begin exporting its biodiesel internationally," which should "return greater profits than domestic biodiesel sales."
    Horan, who also sits on the board of the Newton firm, said the European market is providing "breathing room" for producers until the mandate kicks in and domestic sales increase.

    He said Europe needs the U.S. biodiesel because of usage mandates that several countries there have imposed in recent years. "They have painted themselves into a corner. The mandates are outstripping their capacity to produce it." Countries with mandates include Austria, the Netherlands and the United Kingdom.
    Bruce Bab****, an economist at Iowa State University, said that subsidizing biodiesel for sale to Europe is "kind of bizarre" and keeps soybean oil prices higher than they otherwise would be.

    "It's hurting the American taxpayer. It's not really helping anything," he said.

    Randy Olson, executive director of the Iowa Biodiesel Board, said he didn't think that Iowa biodiesel producers were exporting as much of their product as processors located closer to the seaports.
    Riksch BioFuels LLC of Crawfordsville is still selling all its product domestically but is making it out of animal fat and vegetable oils that have been rejected by processors as unsuitable for food.

    "We're not running at 100 percent. We can say that pretty confidently. We're running steady enough," said Neil Rich, president and chief executive of the firm.
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