Turning the tapon biofuels

THE Irish biofuels industry died on Jan 1, 2011 when a government tax relief scheme designed to foster the sector was replaced with one which has completely failed to do so. As a result, almost all of the country’s bioethanol, biodiesel, and oil-crushing plants were switched off.

Tom Bruton, president of the Irish Bioenergy Association (IrBEA) says in all, eight facilities built between 2005 and 2008 — often with grant aid — were shut down just over 16 months ago.

“There were people employed by these companies that had to be let go,” he says.

“There were people manning the production systems and people delivering the fuel that aren’t working any more.”

Biogreen Energy Products used to employ 13 people at its pure plant oil (PPO) manufacturing facility in Adamstown, Co Wexford. Anthony McCarthy of the company says Biogreen had been processing between 2,000 and 3,000 litres of biofuel every month prior to Jan 2011. A network of about 400 farmers spread throughout the country grew oil seed rape, which was then harvested and transported to the company’s Adamstown plant, where it was processed into PPO. The fuel was then sold to end users for use in vehicles with modified engines.

“What we’ve done since this debacle started is look for other markets,” says Mr McCarthy.

“We’re at about 20% capacity with those, but we might as well be idle. It’s the sort of plant that really needs to be producing at 50% to pay for itself.”

He is scathing of government policy. “It is hard enough to produce biofuel without artificial hoops being constructed to jump through to make it even harder. The baby was left outside to die of the cold on the first of Jan 2011… It is to be hoped that those responsible for this will be called to task when Ireland is critically short of liquid fuels in the months and years ahead.”

It all started with the mineral oil tax relief scheme, or MOTR. Designed to help kick-start the indigenous biofuel industry, it was introduced in 2005 on a pilot basis, then followed in 2006 with a more substantial version, which ran for four years until the end of 2010.

Successful applicants did not have to pay excise duty on a substantial proportion of the biofuel they produced, thereby giving them a significant competitive advantage over mineral diesel. The scheme generated huge interest and over 100 companies sought one of only 16 places made available. In total, the excise derogations would cost the taxpayer €205m.

The scheme unashamedly favoured larger applicants. A regulatory impact assessment published by the Department of Communications, Energy and Natural Resources in July 2009 said: “While small ‘pilot’ type plants...have their place, a commercially-viable industry would require units of sufficient size to be able to compete in an open international market when the MOTR Scheme II terminates at the end of 2010.”

The scheme was a failure. Various unforeseen factors, including changing market conditions and planning issues, meant many of the successful applicants never produced a drop of oil. What’s worse, many simply imported the biofuel and pocketed the subsidy. By the first quarter of 2009, only 28% of the allocated exemption was taken up.

The large number of unsuccessful applicants were not shy about making their displeasure known; without the derogation from excise duty, it was impossible to produce biofuel at a competitive price.

The scheme attracted so much criticism that when it expired in 2010, there was no appetite to renew it. Instead, the department introduced an obligation scheme. Rather than support the production of biofuel through a subsidy, they would simply impose a legal requirement that four out of every 100 litres of road transport fuel placed on the Irish market be biofuel. Conceptually simple, but a little more complicated in practise.

The biofuel obligation scheme, or BOS, is a “cap and trade” system. It allows the obligated parties flexibility on how they meet their obligations. In simple terms, and subject to some qualification, it works like this: Each time an oil supplier puts a litre of biofuel on the market, he applies to the National Oil Reserves Agency, for a BOS cert. Then, at the end of the year, the certs are totted up. If he has fulfilled his obligations and put the required amount of biofuel on the market, he will have enough certs to testify to this. If he doesn’t, he has to go to other obligated parties and bargain for enough certs to bring him up to quota. Alternatively, he can pay a buy-out levy, currently set at 45c per litre.

While the system has been very effective in putting more biofuel on the market, it has summarily ended the indigenous biofuel sector.

“How it should have worked,” says Barry Caslin, bioenergy expert at Teagasc, “is that those fuel majors would work with the biofuel producers. They’d buy it off them and blend it themselves, but what they’re essentially doing is side-stepping the indigenous producers and importing it pre-blended from their suppliers in Rotterdam and Milford Haven. They’re saying, ‘look, we need to have 4% of our annual sales from renewables, can you make sure it’s pre-blended? That ticks the box for us’.”

Mr Caslin points out this was an entirely logical outcome. If you’re a fossil fuel company, you’re in direct competition with biofuel suppliers. Why would you want to give your competitors business? Moreover, it’s a far simpler to require existing suppliers to solve your biofuel obligation issues than deal with a multiplicity of small, local distributors. The biofuel obligation scheme has been the death knell of indigenous biofuel production in this country.”

The problem again comes back to viability. The sector hasn’t achieved sufficient scale to be competitive. Made up of a network of small, frequently farm-based businesses, in the absence of state support, they cannot compete with large-scale global bioenergy producers.

In theory, indigenous suppliers can retain the BOS certs they receive for supplying biofuel onto the local market, then trade them at the end of the year, thereby boosting their revenue. In reality, the system causes impossible cashflow issues. Excise must be paid at point of sale. Certs cannot be sold until the end of the year. More particularly, it’s impossible to know how much the certs are worth.

“You just don’t know where you stand,” says Tom Bruton.

“The account is settled every year in February. We’re in April now. If you sell biofuel to one of the oil companies, part of the deal is you get this cert for biofuels but you’ve no idea what it’s worth until this time next year, and it may be worth nothing.”

Because the biofuel companies could not shoulder this risk, they had no option but to shut up shop and go home. “The only practical liquid biofuel producible from a crop in Ireland has been frozen out of the scheme despite the 10 years of investment, sweat and grant aid already spent,” says Anthony McCarthy of Biogreen.

When the BOS scheme was first mooted, the sector was not slow to flag exactly what it would mean for the sector. “We wore a path up to Dublin before the deadline,” says Mossie O’Donovan of Bandon-based Eco-Ola. Up until the company ceased trading with the loss of 20 jobs in Jan 2011, they had been manufacturing between 1.5m and 2m litres of biodiesel from oil seed rape every year.

“Ourselves and all the other interested parties, in association with the Irish Bioenergy Association and the Irish Farmers’ Association, met with the department several times. We looked for and thought we’d been granted a meeting with the minister, but every time, it was always a department official... we were basically told: ‘No, look, we’re running with this new system and that’s it’.”

Critics of the biofuel industry have argued that rising demand for fuel has displaced food crops and forced the price of agricultural produce higher. A World Bank publication released in 2008 said that large increases in biofuels production in the US and Europe are the main reason behind the steep rise in global food prices.

“It’s legitimate to ask these questions,” says Mr Bruton.

He says sustainability legislation in the pipeline is designed to limit displacement and impose sustainability criteria on biofuel production. All fuels will be graded on “land-use change” criteria.

“If you’re chopping down rainforest to grow biofuels, you’d score a minus 500 on your land use change criteria, so the industry is taking that issue seriously.”

Mr Bruton goes on to say in Ireland, in particular, there are no food versus fuel issues. “We produce eight times more beef than we can eat, 10 times more cheese. We’ve a massive food surplus in Ireland and, on the other hand, we’ve a huge reliance on imported energy. We spend €6bn a year importing fossil fuels to put in all those tractors, we even import animal feed for our cattle while we actually have an energy deficiency.”

Notwithstanding these issues, industry insiders are not particularly sympathetic to the indigenous biofuel industry. They point out that the MOTR scheme was always going to be temporary, and that the local sector was ultimately going to have to stand or fall on its commercial viability.

Nor is there much sympathy in the Department of Communications, Energy, and Natural Resources. Though the sector has asked for some modification to the BOS system to allow greater certainty in the pricing of BOS certs, the department says the system will not be reviewed. In an emailed response to questions, the department blames the predicament of indigenous producers on high commodity prices, making the price of the industry’s key input — oil seed rape — prohibitively high.

Mr Bruton rejects this.

“The obligation was set without any regard to the price of commodities. The only concern was to remove any direct burden on the exchequer. Anyone making biofuels internationally from rape seed is also subject to commodity price fluctuations.”

The department also says that by imposing a biofuel obligation rate of 4%, the biofuel market in Ireland was effectively doubled: “The obligation scheme provides market players with long-term certainty to develop projects which are economically viable and of scale.”

That last phrase — economically viable and of scale — again indicates that small producers do not form part of the Government’s bioenergy policy. All of the biofuel enterprises which are viable and of scale are based far beyond these borders. Given our overwhelming reliance on imported fuel, it does seem surprising that energy security doesn’t appear to figure in Irish biofuel policy.

“This is most frustrating,” says Mr Bruton. “The Government does not really care if the biofuel comes from Irish manufacturers or Timbuktu. The energy security aspect of encouraging indigenous production is completely ignored.”

The department goes on to say: “The scheme helps, by creating a statutory demand for biofuels, promote the sustainable growth of the Irish biofuels market, thus supporting the growth of sustainable indigenous production of biofuels.”

It’s difficult to square this assertion with the reality that the indigenous production of biofuels has all but disappeared since the scheme came into force, and that almost all biofuels are imported. EU directives commit us to sourcing 10% of our transport energy from sustainable sources by 2020. The biofuel obligation will increase incrementally from it’s current 4% as we approach that date, leading ultimately to a market size approaching 500m litres of biofuel. As it stands, very little of that fuel will be Irish.

In the meantime, the indigenous sector continues to fight for survival. Last year, the IrBEA commissioned an independent report from DKM Consultants which said against the right policy background, the economy can benefit hugely from meeting the 2020 bioenergy targets. The report suggests a successful domestic bioenergy sector could provide 3,600 permanent jobs, €1.5bn in direct investment and reduce Ireland’s energy import bill by 7.5%. “We’re excited at the numbers,” says Mr Bruton. “Who’s going to sneeze at 3,600 jobs in this economy?”

However, optimism is a scarce commodity in the industry.

“Beware those thinking of going into biofuels,” says Mr McCarthy of Biogreen. “Our experience is that in Ireland, the regulations will be structured such that the local players will be severely disadvantaged.”

Mourning the lack of policy initiation in a fertile field

Biogreen Energy Products in Adamstown, Co Wexford, is one of the longest-established biofuel enterprises in the country. Biogreen was one of the eight projects which qualified for relief under the pilot mineral oil tax relief (MOTR) scheme back in 2005.

The company extracts pure plant oil from the seed of the rape plant for use in modified diesel engines. The seed is cold pressed to extract the oil, which is then filtered and poured in to the converted vehicle with no further refinement. The residue is compacted into a high-protein animal feed, known as “cake”.

By 2010, Biogreen was producing between 2,000 and 3,000 litres of pure plant oil a month, while its network of growers rose from 40 local farmers to nearly 400 nationwide. But following the demise of the MOTR scheme, its pure plant oil became unviable instantly.

Now, Anthony McCarthy of Biogreen says the plant is in “parking” mode, producing minimal amounts for alternative markets. “We are getting four or five phonecalls a day from people who want to use our biofuel. We have to tell them, ‘look, we would love to sell biofuel but we cannot pay 43c-a-litre excise duty’. It’s absolutely scandalous.”

Mr McCarthy has been one of the most vocal opponents of the biofuel obligation scheme (BOS), which came in in mid-2010 to replace the MOTR scheme. He maintains that since its introduction, most of the rape seed produced in the country is exported for processing. “Conversely, most of our biofuel is now being imported. The irony is that some of the blended biofuel coming in to the country inevitably originates from Irish rapeseed.” He believes, too, that in the right policy environment, there’s ample scope for boosting both domestic agriculture and energy security.

“For every 100 hectares of rapeseed sown, there’s one extra job in the larger farming environment. The crop hasn’t been promoted; we could be growing twice as much. We’re not at the optimum acreage by any means.”

He says unless the BOS scheme is modified to reduce the risk borne by the supplier, there’s little prospect of fuel crops being grown in Ireland anytime soon.

State agencies ‘don’t care if it works or not’

Michael McBennett’s oil-crushing operation in Baldonnel, Co Dublin, was sunk even before it began.

In addition to receiving grant aid to build the plant, he invested €300,000 of his own money in it.

“The whole idea was we were going to crush our own oilseed rape, plus whatever we would buy in,” says Mr McBennett. “The plant we put in would handle about 1m litres a year.”

This was in 2006, just before the second mineral oil tax relief scheme was rolled out. When Mr McBennett failed to secure one of the 16 places on the scheme, his operation was effectively sunk.

Without the excise derogation, the fuel became prohibitively expensive.

“It was extremely annoying, particularly given what’s happened subsequently,” he says. “Most of the people that got in on the MOTR scheme never built facilities or produced biofuel. It was crazy.”

The business struggled on, and found limited alternative markets for the oil as a dust retardant and for mass concrete shuttering. Based on a working farm, Mr McBennett made no secret of the fact that he used the oil in his own vehicles. “What really annoyed me was I actually got a grant to build the plant, which makes it even more stupid,” he says.

The policy environment for small biofuel producers deteriorated further when the MOTR scheme was replaced by the biofuel obligation scheme in 2010. Suppliers of biofuel, now fully taxed, receive BOS certs for each litre they supply.

In theory, these certs can be traded at the end of the year to boost revenue, but uncertainty over how the certs are priced, combined with a lag between selling the oil and collecting cert revenue makes trading impossibly risky for small producers.

“We told the government at the time that this was not going to work,” says Mr McBennett. “When you’re selling oil, you have to charge for the oil, you have to charge the excise duty, you have to charge Vat. You’re then given a certificate through a registration system online but you don’t know what the value of the certificate is until the end of the year.”

Mr McBennett says he has little hope that the system will change, and believes that state agencies are more interested in “process than progress”. “They want to keep it simple. They don’t care if it works or not.”

One of Ireland’s few successes in the industry

Green Biofuels Ireland is one of the few success stories to emerge from the indigenous biofuels industry. The company employs 22 people at its state-of-the-art manufacturing facility in New Ross, Co Wexford. The secret of its success lies in the fact that instead of relying on specially grown fuel crops, Green Biofuels manufactures 34.5m litres of biodiesel every year from waste products.

Chief executive Nick Tierney explains that his background is in the animal byproduct industry.

Early in the last decade, he began investigating how tallow and animal fats might be used in a locally-based biofuel industry.

“The idea was that we would use raw materials made in Ireland and create jobs in Ireland, make green fuel in Ireland and sell it into the Irish fuel distribution market. That was the concept, though it turned out to be more difficult than we thought.”

The original concept was to use both fuel crops such as rapeseed, and animal by-products as twin feedstocks for biofuel. The company signed up for the mineral oil tax relief (MOTR) scheme and though they weren’t ready for the first round, they were beneficiaries in the second. When that scheme expired at the end of 2010 — as others in the industry have attested — rapeseed biofuel became unviable overnight.

In the new dispensation, however, the business case for using waste products to manufacture biodiesel remained as strong as before.

Green Biofuels teamed up with an Austrian company which produces cutting-edge technology for processing wastes into biofuel.

“Our plant is one of the most advanced in the world,” says Tierney.

“It’s like a mini-oil refinery. We’ve never used virgin oil, so we have no food versus fuel issues. All we use is waste cooking oils and animal fats. Both are considered wastes and residues.”

In addition to using locally generated waste in its manufacturing process, Green Biofuel also ships in waste from Britain and Europe.

The key advantage of using waste products to make biofuel is sustainability. Under the EU’s Renewable Energy Directive, all biofuels produced today must achieve greenhouse gas emissions savings of 35% over fossil fuels, a figure which will increase to 60% by 2018.

“Today, we’re making an 83% saving,” says Tierney, “so we’re way ahead of the curve.”

The 30,000 tonnes of waste transported into the New Ross facility each year is processed into 34.5m litres of biofuel which is then sold to major oil distributors in both the Republic and Northern Ireland.

His product is so pure, says Tierney, that you can actually drink it.

“It’s organic, it’s biodegradable. If you spill it, it’s gone in a week and it will actually put a fire out. Its flashpoint is 200 degrees, whereas diesel’s flashpoint is 45 degrees.”

The company also has one eye on the future. In collaboration with a group third level institutes and research organisations, Green Biofuels is investigating the possibility of growing algae for biofuel production.

“It’s hard to know how long before these crops might be commercialised — you could be looking at anything from five to 10 years. It’s impossible to say.”

In the meantime, he is more optimistic about the future of the industry than most. Public policy will increase the biofuel blended into fossil fuel from 4% to 10% over the next eight years, more than doubling the market. In addition, biofuel will remain exempt from carbon taxes. “So biofuel could end up being cheaper than fossil fuel,” says Tierney.


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