Tuesday, June 16, 2009

A Biodiesel Maker’s Tale of Woe



When Imperium Renewables opened a plant in Washington state in 2007, it claimed to have built the largest biodiesel facility in the country.

Now, like so many others in the biodiesel industry, Imperium’s plant sits idle. Its big tanks are leased out as a storage facility for biodiesel made elsewhere.

I spoke earlier this week with John Plaza, Imperium’s founder. He has been through it all. Last year, Imperium had to pull out of an initial public offering, and it lost a cruise-line as a potentially huge customer.

This year, Mr. Plaza’s company has been buffeted by forces that range from a new European tariff on biodiesel to controversies over the environmental friendliness of the fuel. Conventional diesel prices have also plunged, undercutting the cost advantage of biodiesel.

“I don’t think we were smart enough to see the horrific storm of events that hit,” Mr. Plaza said.

During the year and a half that Imperium was intermittently operating, the company exported most of its biodiesel to Europe. Mr. Plaza declined to give an exact percentage.

But this spring, Europe slapped a tariff on American biodiesel exports — and Mr. Plaza reckoned that no American-produced biodiesel is headed to Europe anymore.

The United States market, he said, was always the long-term hope for Imperium. The federal government’s “renewable fuel standard” calls for 500 million gallons of biodiesel to be used in the United States this year. But the Environmental Protection Agency has been slow to issue a rule that backs up the mandate, and Imperium and other producers have been left hanging.

“The gist of the story is we have mandated demand put in place by the government that has failed,” Mr. Plaza said.

Last week, the E.P.A. issued its long-awaited proposed rule for implementing the mandate. But the rule — which biodiesel makers think could be approved in the fall — creates another problem for the industry. Biodiesel does not reduce greenhouse gas emissions enough compared to petroleum, the E.P.A. says.

That’s because of a concept called “indirect land use” — the idea that that growing crops to make biodiesel could displace crops for food. Those food crops could then theoretically relocate to places like Indonesia, where carbon-digesting rainforests are sometimes cut down to make way for crops.

“What’s frustrating, one, is it’s not really based on science or fact, it’s based on theory,” Mr. Plaza said of the E.P.A. land-use proposals, echoing the criticisms voiced by the National Biodiesel Board, an industry association.

Mr. Plaza also wants to separate Imperium’s feedstock, canola — a Canadian crop that fuels the Washington refinery when it is working — from soybeans, the principal biodiesel feedstock in the United States.

“Canola is lumped into the same indirect land-use criteria that soybeans are, and I think that’s a huge disservice to the populace,” he said.

Asked to forecast when Imperium’s plant might resume production, he replied, “I think if I did, there would be a lot of people paying me big dollars for a crystal-ball mentality.” The best-case scenario, he added, was the fourth quarter, or “hopefully sooner.”

Meanwhile, he said, Imperium could survive through next year on the storage leasing income (Mr. Plaza would not specify the lessee company, calling it only a “global trader of sorts”).

But “if nothing changes by 2011, there will be re-evaluating across the industry,” he said.

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