GERMANY PHASING OUT BIODIESEL SUBSIDIES

by Julio Godoy

(IPS) BERLIN -- Until a few months ago, the production of crop-based fuels was the best energy business imaginable in Germany, thanks to growing demand supported by the government. That's no longer the case.

The tax exemptions were generous and the reigning belief was that biofuels constituted a major contribution to the fight against climate change.

This outlook led farmers and refineries to boost production and capacity, which jumped from 200,000 tons of distilled biodiesel from rapeseed (Brassica napus), in 2000 to 3.4 million tons in 2006.

The area dedicated to growing soybeans and rapeseed has increased five-fold since 1992. More than a million hectares are planted with rapeseed in Germany -- 10 percent of the country's agricultural land. In some regions, like the northern state of Mecklenburg-Western Pomerania, the crop covers 20 percent of all farmland.

But the basis for the once-positive outlook is beginning to disappear. As of Jan. 1, the German government will receive nine cents on the dollar per litre of biodiesel. That tax will increase to more than 65 cents on the dollar in 2012.

The tax exemption and subsidies for biofuels represented nearly three billion dollars in 2006. Because the new taxes imply an increase in the price, biodiesel will lose its ability to compete with fossil fuels, prompting predictions of a decline in demand.

"Many companies are already seeing the negative consequences of the end of the exemptions. As a result, farmers and refineries have reduced production," said Frank Bruehning, spokesman for the German association of agricultural fuel producers, in an interview for this report.

Furthermore, the greater demand for oleaginous crops to be used for fuels generated an inflationary spiral for those inputs. And the competition of imported rapeseed oil -- much cheaper -- helped undermine the future of the business.

Another government measure to promote the use and production of biofuel in Germany -- a mixture of at least five percent of biodiesel with gasoline -- turned into a stimulus for import, because of the increase in prices on the German market.

The mixture should increase to ten percent by 2010, and the plant-based fuels used are to be produced in a sustainable and environmentally neutral way.

According to figures from Biogene, the federal association for renewable fuels, the leading distributors currently use up to 90 percent biodiesel to mix with gasoline.

A consequence of these setbacks is the decline in shares of German biofuel refineries like Verbio, BDI Biodiesel and Biopetrol. These were promising companies until recently, and now face million-dollar losses.

The complaints didn't take long in coming. At a press conference in early December, the president of the Federal Association of Organic Fuels, Peter Schrum, accused the Finance Minister of trying to "crush us."

Although so far the federal government opposes reversing the taxes on plant-based fuels, the issue created discord in the governing coalition of Christian Democrats and the Social Democrats.

In late November, the Christian Democrat ministers of Economy and Agriculture, Michael Glos and Horst Seehofer, asked for the elimination of the new taxes, arguing that they constitute a stimulus for importation of refined palm oil biodiesel from countries like Indonesia, where the fuel production involves the destruction of tropical forests.

But Social Democrat Finance Minister Peer Steinbruck rejected their request, as did Christian Democrats like Leo Dautzenberg, finance commissioner of the party.

"Maintaining the tax exemptions for plant-based fuels doesn't make sense," said Dautzenberg in an interview for this article.

What's more, the environmental benefits of biofuels compared to petroleum-based fuels are increasingly challenged by scientists and activists.

A study by the Hamburg Environmental Institute presented Nov. 26 concludes that the reduction of greenhouse-effect gases from the use of biofuels is negligible.

According to the report, the mix of 5.75 percent plant fuels with fossil fuels would mean a maximum reduction of just 3.5 percent of carbon dioxide emissions, without taking into consideration the environmental consequences of deforestation, due to the extension of areas cultivated with soy and rapeseed.

The study also estimates that biofuels involve unquantified costs -- negative environmental effects -- of between $320 - 370 for each ton of carbon dioxide not emitted, in addition to releasing nitrous oxide, another greenhouse gas, from the use of nitrate-based fertilizers.

Environmental organizations like Greenpeace have long been warning about the "environmental fraud" that, in their opinion, biofuels represent.

According to Greenpeace spokesperson Michael Hopf, biodiesel "produces as many fine carcinogenic particulates as do fossil fuels."

Furthermore, Hopf told this reporter, the planting of crops for fuels means giving up that land for growing food.

"One hectare yields some 3.5 tons of rapeseed per year, which represents about 1.07 tons of biodiesel, or about 1,150 litres. But that level of yield occurs once every four years, which reduces it to an average of 288 litres per year," he explained.

If half the available farmland in Germany were used to grow rapeseed, the total production would be 1,500 million litres of biodiesel, less than five percent of the total annual consumption of gasoline in Germany.

On that same land it is possible to grow 6.8 million tons of wheat, or 41 million tons of potatoes. "Germany has to choose between producing food or vegetable oil to run its cars," said Hopf.