By Stian Overdahl*
The biodiesel industry in New Zealand finds itself in a perilous position today, due to its reliance on subsidies and the Government’s reluctance to give a clear indication whether it intends to extend the subsidies.
The industry was largely created when the Labour Government made it a requirement that biofuels make up part of New Zealand’s fuel use.
While National disestablished the obligation, they continued on with a type of government encouragement, namely subsidising biodiesel production and removing the excise tax on bioethanol.
Three years on, and every sign is that the biodiesel subsidy will not be extended, which will potentially wipe the biodiesel industry out.
And as some in the biodiesel industry have noted, even if it is extended, the lack of certainty provided by the Government, in the past and currently, means that for most operators it will already be too late.
It is clear from a survey of the biodiesel industry that it includes a fair amount of local ingenuity, and it creates jobs for the local economy, including skilled ones.
But taking the longer term view, it seems likely that biofuels will become a larger part of our energy mix.
The world’s oil is not running out, but is getting more expensive, which will eventually make the use of biofuels popular through market mechanisms.
It also seems logical that New Zealand, one of the most under-populated and agriculturally fertile countries in the world, could play a part in the growth of biofuels.
Nevertheless, whatever the aspirations of the industry, it seems that a three-year scheme with no clarity about whether it will continue is of little use to an industry reliant on private investment.
For a ‘pro-business’ Government, National have seemed to display a fairly high degree of ignorance of the manner in which businesses function.
The other option that has been suggested is that the biodiesel subsidy scheme was a sop, a politically expedient measure put in place to water down Labour’s requirements without attracting public scrutiny or criticism.
Either way, the rule of thumb is that there is no biofuel industry in the world that exists without subsidy, given the time and money it takes for a plant to grow and benefit from economy of scale.
Biofuels are also competing with a product whose cost fluctuates almost without reason.
Nevertheless the Government has said it will review the success of the biodiesel scheme and consider whether to continue it.
If there is no extension it is tantamount to saying the current Government doesn’t believe New Zealand should have a biodiesel industry. If nothing else, those in the industry and elsewhere should receive a good explanation as to why.
----------------------------
A version of this article first appeared in Autofile Magazine, a publication servicing the motor vehicle industry. Stian Overdahl is the editor of Autofile Magazine. This magazine published a full review here » (Warning: a large .pdf download.)
17 Comments
The simple answer is NO – that is why : http://www.youtube.com/watch?v=mv1awevoKAw
Same old story:
Looking into current developments on many fronts – the world will never recover again, simply because among the powerful in societies ethic and moral requirements and standards don’t prevail
There are so many problems with the ideas in this article.
Firstly, if no bio fuel industry exists in the world without government subsidy what make you think a country as small as NZ could possibly compete on a subsidy versus subsidy basis in a world marketplace?
Secondly, if the industry needs economies of scale why are we wasting our time in a market like NZ, that doesn't have and can never have any economy of scale?
Thirdly, the idea that commercial success is grounded in beliefs held by governments about what industries NZ should (or should not) have is ridiculous. Let's leave it to North Korea and Zimbabwe to 'legislate' success and see if they do any better than Russia did.
Fourthly, for an industry that only exists through government subsidy to accuse anyone else of a high degree of business ignorance is first rate hypocrisy.
mm yes and no....It is the Govn's job to protect the well being of NZ and that includes businesses....Businesses look at efficiecny and profit, so need to be lean.....Govn's should look to resiliancy, and redundancy to ensure continuity over the medium and long term. Part of this is avoiding bad economic shocks.....
So its simple, sure let the NZ biofuel industry die now, then when deisel gets expensive or worse scarce, (in a very short time frame) to the point we will see businesses close then watch the right whingers whine....and their taxes go up as the un-employment lines lengthen...
We dont need to exist on a world wide subsidy, we just need to aim to produce enough bio-fuel that in an emergency we have enough to get by.... Part of that is having an experience base here in NZ on the practicalities of running a biofuel business...
Its really a choice you make....suffer severely in the future or learn to live with higher and higher prices over a long period.....so you can adapt and reduce your use gradually.....
We can I think do tallow to biodeisel on a scale to suit NZ...its a waste product as well I believe so its EROEI makes sense.....
Otherwise yes I am very un-easy on the principle of govns subsidizing business, but there sometimes I cant see any better options, this is one. The other option is the Govn itself being in the business of making biofuel and that I think is way worse.
regards
The world is not running out oil, but it is getting more expensive? The only way for that statement to be true would be if oil was infinite. There are very few infinite things in existence, exceptions are space, time, numbers and money. Oil is not one of them.
Oil is getting more expensive, so we should wait for price to solve the equation of subsidies, before we act? I'd say a fair bit of the cost of creating biodiesel is linked to the price of oil, unless we go down the same path as Brazil with ethanol, where most of the work is done by hand. If there is no economic benefit to biodiesel, why bother?
A more rational approach would be to aknowlege that our society and economy is based on fossil fuels. Actually analyse how much we have, calculate how long it will last, determine if we are using them in the most efficient way possible, and plan for the increase in price, and reduction in consumption.
When I hear of truckloads of goods going from the South Island to the North Island, then returning with nearly identical goods, I seriously question the current economic model.
To a greater or lesser extent (depending on the model - corn ethanol produced in the US midwest through to sugar ethanol from Brazil) existing bioethanol production is subject to the law of receding horizons because of its dependence on existing fossil fuel inputs.
Cellulosic ethanol doesnt seem to be getting anywhere very fast and algal biofuels have been worked on since Jimmy Carter's day without ever becoming particularly viable (possibly a bit like nuclear fusion - always the energy source of tomorrow).
Here in NZ we would be much better off establishing a National oil production 'champion' (along the lines of Statoil in Norway) and making the best of the indigenous oil that we have rather than letting it be extracted in the here and now for a pittance in royalties.
If oil is such an issue, what is the NZ government doing to regulate NZs oil exploration and production, in an effort to promote an 'innovative and competitive market', for the benefit of NZ consumers, such as it is proposing to do with the way Fonterra can pay it's suppliers for milk?
Oh this will be a real good one for a giggle. Every Malthusian dippy-hippie-happy-hand-clapper from the cooperative will be all over this one like a rash with their usual expert energy fantasies. LMFAO!
What NZ does or doesn’t do with respect to biofuels won’t make a jot of difference to what happens to biofuels, how they are used, and in what quantities. Those decisions will not be made here. In fact I can go one step further and say no-one even cares what New Zealand does when it comes to the use and pricing of biofeuls. The risk though is whether or not NZX will make the right decisions about biofeuls for itself which positions the country in the best possible way for the future. The last thing this country needs is to be forced yet again to pay a premium for overseas innovation and technology that could have been developed and/ or made here. But if past performance is anything to go by.............
Can anyone hear clapping?
For those who may be wondering what the big oil companies are doing about biofeuls, what their stance on the issue is and whether that position has anything in it that could be used to inform New Zealand's view, this is an interesting article.
http://www.reuters.com/article/2012/03/20/idUS71431+20-Mar-2012+BW20120…
Well said skudiv. I posted a link on another thread which discussed this issue. At the risk of repeating myself here it is again. http://www.macrobusiness.com.au/2012/03/the-exponential-end-game-leith-van-onselen/ It is worth reading the entire Tullet Prebon research paper. This is not some peak oil doom sayers but rather a City of London brokerage firm.
Here are a few quotes:
-
"…the economy is an energy equation. Society as we know it today is a product of the use of extraneous energy to leverage the limited capabilities of human labour. The leveraging effect of abundant extraneous energy alone permits the earth to support a population of almost seven billion people."
-
Whilst we do not believe in a ‘Peak Oil’ doom thesis, we do believe that the critical equation, which is the relationship between energy extracted and energy consumed in the extraction process, is deteriorating markedly.
-
the ‘green revolution’ – the dramatic expansion in food production over the last two centuries – has been almost wholly energy-driven. Across the gamut of its activities, modern agriculture is massively (and increasingly) energy-intensive, relying hugely on mechanised planting, cultivation, processing and distribution, and on extraneous inputs such as fertilisers and pesticides. All of these inputs are energy-dependent (through extraction and delivery) even when they are not sourced directly from hydrocarbons.
The problem with biofuels is that the energy expended in producing them is almost as much as the energy they produce. It seems pretty easy to understand that there is no point using energy to produce the same amount of energy in another form and even more pointless if you end up with less energy than you had before you started. It is why eating celery is recommended to dieters. You lose weight because it takes more energy to eat the celery than you get from it so you have to resort to your fat reserves to keep going. In the case of biofuel we are very close to needing to use our fat reserves (fossil fuel or some other energy form) to break even.
Lets point this out in numbers....Break even of most biofuel from crops is 1 to 1, synth crude from Alberta at best 6 to 1, but <5 to 1 could be more like it. Lowest estimate of the ratio to have the economy we have was from pdk at 8 to 1.....lowest I have seen is 10 to 1......Wind is about 14~18 to 1.... Tallow is a waste product then I would assume the raw materials energy cost to produce is zero.....so its just the energy on the conversion process, might get us to 6~9 to 1 in that case....
He is sort of wrong on "there is no point using energy to produce the same amount of energy in another form" IF we are converting to a transport fuel from a static fuel. This is because 70% ? of our energy needs is transport....so while its robbing peter to pay paul its a price we have to pay.
As an aside, as Im sure I will see the mis-informed throw misleading "insights" in....possible outputs........eg.,
"It remains unclear how the U.S. will accommodate the mandated 14 billion gallons of ethanol by 2012, since this will use up 60% of the U.S. corn crop."
So I dont see how that will keep ramping up....lots of agricultural land needed so huge conversions but the EROEI is useless.....so a dead end.
or,
"When it comes to vegetable oil production in the U.S., were one to divert the entire U.S. soybean oil production towards biodiesel production, “it could replace only 13 days of current annual U.S. distillate demand."
Its the scale that bites you...that and the timeframe.
regards
He is sort of wrong on "there is no point using energy to produce the same amount of energy in another form"
I am actually "she." but you are right when you say:
" IF we are converting to a transport fuel from a static fuel. This is because 70% ? of our energy needs is transport....so while its robbing peter to pay paul its a price we have to pay."
I don't think we are able convert from say coal to petrol, as an example and putting aside greenhouse gases, with no energy losses so don't we need to start thinking about how we can do the transport thing less or differently.
Definitely agree that diverting any waste is a good idea.
My appologies....
Solid Energy wants to convert the lignite on SI to transport fuel, that should say volumes of how needy we are to use the lowest quality "coal" for fuel....never mind the CO2 or EROEI. Yes we do need to start thinking, though I think thinking was in 2005 or earlier, now, or shortly its do, but market forces will be the usual orcale and sort it....maybe after this fiasco we might get that piece of mantra dumped.
Problem is with moving to alternatives is it takes many years as I think you know, so there will need to be a half way meeting as it were. Transport bought today has a 20 year life there is no incentive or even warnings we need to do it differently. There is also no easy subsitute for oil...so electrfying rail and trams looks rather important, yet no one wants to know, its all about first cost.....the worry is getting enough deisel for esentials like moving food to supermarkets...though the entire economy will be in a bad way....
I think Matt Simmons? summed it up well, it will take three or so of these peak oil shocks to get things accepted and moving......we are entering no2 I think....so 2 maybe 3 years off....then the real panic will start....
regards
This opinion piece originally accompanied an article on the state of the biodiesel industry in New Zealand. You can read this at
http://autofile.co.nz/Issues/Current/Autofile_23Mar-online.pdf
I walk the talk... I use Biodiesel for my car and I have to go to considerable effort to source it from commerical producers
The real economic reason for biofuels is energy security, this is why biofuels are encouraged and supported by govts in the USA, EU and others
By using it I am:
- supporting the NZ economy
- reducing my and NZ's dependance on foreign oil
- Using a clean fuel from sustainable resources
The govt should be incentivising alternative and biofuels, that said I'm not so sure a subsidy is the best method
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.