Biofuels – false prophets make politicians insecure

Erkner, (PresseBox) - One year ago, biofuels still were particularly popular by the media and by politicians in Germany and Europe. The approved positive properties of climate and resource protection made biofuels to the most beloved children of any politico-economic discussion throughout Europe. One year ago, a 10% biofuel quota for 2020 was defined as a target within the EU climate directive, lead by the German Government. Each European country could reach this goal optionally by either tax relief or obligatory blending quotas.

Today - one year later - German and in the meantime also European media is coined by statements like:

- Biofuels increase the price for food
- Biofuels destroy the rainforests
- Biofuels - an aberration?
- Where does our tax money disappear?
- and so on.

A range of self-proclaimed prophets, without ascertainable experience in this area, pipe up every day and fuel the discussion. Like this, bioethanol racing cars will not be permitted at this year's 24 hours racing at the Nürburgring, organized by the German Automotive Association ADAC. How could this happen? What is this attack on biofuel about? How did this discussion start?
In the following, it will be attempted to find the urgently needed answers to these questions in a way that this issue will be easily understood and so that non-experts can also bring up a mind of their-own.

1. Increase in prices of food and grains

World grain prices have nearly doubled in the last 8 months, but also prices for oil seeds. At the same time, prices for food have also increased worldwide. In search for reasons of this predictable, several-year development, biofuels were quickly suspected in the first place. These auguries were mainly made divine by prophets with low competence regarding the business of food and raw material economics. As the raw materials for biofuel production derive from the same source, as in food production, it seemed to be easily apparent that biofuels compete against food production. So it was easy for the prophets. What at the first glance appears logical is fundamentally wrong for European biofuels upon closer examination!

In 1980, world prices for grain were on the same level as it is today. This means that grains just cost about the same as 25 years ago. Why?

This development was set by a range of misleading agricultural subsidy policies adopted both by EU and US economies, lasting until the end of the 90's. Farmers were paid direct payments, minimum prices were guaranteed. Thus, huge amounts of grain surplus produced had to be sold cheaply to the world market, possibly due to export subsidies. Therefore, EU and US dumping price practices caused world market prices to cut close and stay at a low level over the past 20 years.
Millions of small-scale farmers in developing countries had to bear the brunt. These farmers continued agriculture for their self supply but, because of the very low international grain prices, were unable to realize an adequate sale price for their production surplus. For this reason, it was not possible to assure a livelihood or to pay school education, resulting in migration into cities in Africa, Asia und South America. In many African regions in the 1990's, the cost of transportation of one bag of grain to the next bigger city or harbour was more expensive than the grain itself.

10 year ago, ministers of the developing world loudly complained at all international agriculture conferences and called upon the EU and the USA for a change in agricultural subsidy policy, a trim in benefits and for opening the markets also for agricultural commodities produced in the third world. The agricultural overproduction in the EU and the USA, characterized by surplus production and cheap exports, finally lead to the set-aside area policy in the EU, cutting back production by reduction acreage by 5 - 10 percent.

About 5 years ago, the EU Commission eventually decided to stop this erroneous development by adjusting agricultural subsidies; minimum prices were abolished and set-aside areas freed for production the of energy. At the same time Chinese and Indian economies grew at around 10 % per year, income increased and eating habits changed from rice/ grains and vegetables over to more milk, cheese, yoghurt, eggs and meat products. In order to produce 1 kg of meat or milk-equivalency, between 6 and 8 kg of grain and around 1 kg of soy or 1,5 kg of rapeseed is needed for beef, chicken and hog production.

It was only a matter of time before grain prices would adjust back to the market equilibrium. Exactly this happened in 2007 when crop failure, caused by world climate change hit the world's biggest net grain exporter, Australia, the year before. Thus, a significant amount of grains, needed as fodder in milk and meat production were simply not available, so that increasing food demand, mainly in South East Asia, could not be satisfied at the old price level. Prices of grains and oil seeds jumped up, so that again we have a price level similar to 1980. Again, supply and demand meet equilibrium and the fair price gives the chance to millions of small-scale farmers, to cultivate their land profitable and feed their families off it. To this day, 25 % of global acreage has not yet been exploited.

2. Biofuels and the influence on food prices increase

Currently, only 1,9 % of global biomass production is used for energy production. The share in biofuels is about 50% or 0,95 % of total biomass production. Hence, the share in biodiesel, plant oils, agro-alcohols and biogas is less than 1% of global biomass production. According to our false prophets, this teensy amount of less than 1% is the causation that the poorest of the poor are worse off and global food supply is in danger.

Looking at biodiesel and plant oils makes the issue clearer:

The world protein supply for fodder in milk, egg and meat production is globally ensured by around 70% of soy bean input. In Europe, but especially in Germany, where in 1980 around 90% of all protein fodders were imports from South America, rape seed had become more present in the protein fodder supply since the late 80's. Rape seed can be processed into 2/3 protein fodder, the residue accounts for rape seed oil. Soy beans result in 4/5 protein fodder and soy bean oil.

The recovery of plant oils is therefore 1/3 in rape seed and only 1/5 in soy bean, when fodder is produced. But about only 30% of the total oils resulting from fodder production can be absorbed in the food production (cooking oil, margarine). The other 70% just cannot be sold in that huge amounts to the food industry and therefore account as surplus. As a consequence of the daily increasing demand in Chinese and Indian protein fodder demand, the plant oil surplus has to be sold to the non-food industry or otherwise has to be disposed as waste.

A considerable protein fodder production could only be established in the last 10 years in Germany and Europe because of the new distribution channel "biofuels".

Policy makers in Germany already had enabled biofuel production in the 90's by giving tax release for biodiesel and plant oils so that fossil diesel could be substituted and surplus oil used efficiently. Several economies worldwide have copied this application model used in Germany. Today, over 50% in German total protein fodder supply for milk and meat production is based on domestic rape seed cultivation. Domestic protein fodder is cheaper than soy or palm kernel protein fodder imported from South America. They are also easier to manage regarding the ecological and sustainable cultivation, and they back up the highly competitive but most important protein resource in Germany.

To get to the point, the German surplus plant oil sold to the biofuel market since more than 10 years, advances production of milk, eggs and meat products at little cost. For the surplus product plant oil, a distribution channel was opened. But with the entry into force of the Energy Tax Act on the 01.08.2006, this, unfortunately, was largely destroyed by a progressive taxation on biodiesel and plant oils for fuel purpose.

3. Impact of German biofuel taxation and its consequences

The biodiesel and plant oil producing economy, established in an exemplary manner with a production capacity of 5 mio t/a - equal to about 18% of total German diesel consumption per year - almost completely collapsed in 2007/08. Today, Germany's biodiesel/ plant oil production is cut back to about 25% of its total capacity. Due to the tax implementation on pure biodiesel, little of this alternative fuel can be sold to the German transport sector. Today, over 3 mio German biodiesel trucks daily fuel the neighbouring countries. Biodiesel and plant oil producers shift jobs and plants outside Germany. Already since months, all parties in Germany have announced the adjustment on this fatal error, but negotiations have stalled because of the ongoing biofuel discussion "Table or Tank" fuelled by false prophets. Hence, the correction of the mistaken Energy Tax Act is complicated. Because of these false prophets and unrealistic discussions of "Table of Tank," the utilisation of surplus oil produced in Germany is prevented.

4. Pure Biofuel Policy

Also the currently enforced biofuel blending policy, which had put away the focus from pure biodiesel B100 and bioethanol E85 towards a blending of regular fuels, gave fuel to the discussion about "Table or Tank". Whereas pure biofuels were locally produced in Germany, blended fuels with a 5 - 10 % share in biogenic content can easily be obtained from cheaper plant oil imports of dubious origin. Blended fuels with a low biogenic content therefore feed the discussion about sustainability and make it easy for the false prophets to come up with images from Indonesia and Brazil where overexploitation is practiced. Biofuels never were the reason for rainforest depletion - but the harvest of tropical timber - is always excluded from this issue.

A policy for pure biofuel application with B100, plant oil and E85 would lead to the use of mainly locally produced surplus plant oils from the protein fodder production that ensures mobility and electricity from locally produced biofuels. In the scope of pure biofuel application palm oil is excluded due to its unfavourable specification under European climate. Ecological problems in the tropics have little to do with European pure biofuels produced locally from local resources. Also, the consequent use of surplus sugar beet but also the use of waste grains in ethanol production is a suggestive utilisation for Germany.

For this reason is the German Government well-advised to leave the 5% biofuel blending quota per year unchanged but stipulated to ensure a share of alternative fuels with an intelligent pure biofuel taxation policy that guarantees fiscal betterment for pure biofuels in long-run. The EU target of a minimum of 10% biofuel application in 2020 can be easily met by the German Government with a 5 % pure biofuel and a 5 % blending application. This share can even be lifted up when the second generation of biofuels become sophisticated and applicable within a few years. This particularly concerns the production of biofuels from wastes and secondary raw materials.

All self-proclaimed prophets should know that first generation biofuels as by-products from the food industry will exist as long as food is produced, so forever. Global grain and oilseed production will increase substantially over the next years because of increasing demand in milk and meat products, mainly in China and India. Therefore, by-products - basis for first generation biofuels - will accumulate automatically. It would be irresponsible not to use these resources in our own country because of misinterpretations of false prophets.

A decrease in the legally fixed biofuel quota in Germany (for pure and blended biofuels in all) from currently 6,25 % down to 5 % is just wrong and would lead to an export of our resources and the production of biofuels outside Germany. In the scope of current fuel prices above 1,50 €, no politician can explain this to its citizens nor take on the responsibility from the misuse of their own resources.

It is really time to immediately adjust fiscal-political mistakes and put all biofuels (also B100 and pure plant oils) better off fiscally and in the long run, like today's bioethanol and biogas so that

- competition at the fuel station is stimulated again by the supply of pure biofuels
- lower prices for fuels would result
- consequent and effective environmental protection

and no longer allow uncertainty by false prophets.

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