EU: Biodiesel Industry Expanding Use of Oilseeds

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Production Estimates and Crop Assessment Division

Foreign Agricultural Service
September 20, 2003

EU: Biodiesel Industry Expanding Use of Oilseeds

Biodiesel production in Europe is growing, and is becoming an important part of the European market for
rapeseed. Annual biodiesel output is now over a million tons per year and requires the input of an estimated 2.7
million tons of oilseed. Biodiesel is not cost competitive with petroleum diesel without subsidies or tax incentives
except in cases where petroleum prices are high in the extreme and vegetable oil prices are low. Biodiesel has a
major advantage over petroleum diesel in that it is derived from renewable sources; thus, on a net basis, fewer
greenhouse gases such as carbon dioxide are emitted into the atmosphere. The political support for the production
and consumption of biodiesel and renewable fuels appears to be present to expand the biodiesel industry.

Production Levels
European production of biodiesel has increased rapidly during the last several years and is now concentrated
primarily in three countries. According to the European Biodiesel Board in Brussels, Germany produced an
estimated 450,000 metric tons in 2002, France produced 366,000 tons, and Italy produced 210,000 tons.

European Union:
Estimated Biodiesel Production, 2002
Country
Germany
France
Italy
Austria
Denmark
United Kingdom
Sweden
Total

(1000 metric tons)

450
366
210
25
10
3
1
1065

Source: European Biodiesel Board

Sources in Germany, primarily the Union Zur Forderung von Oel-Und Proteinpflanzen E.V. (UFOP), estimate
German 2002 production slightly more than 550,000 tons. A time series of total EU biodiesel production could
not be obtained, but sales in Germany have risen from 10,000 tons ten years ago. Meanwhile, authorized
production in France has risen from 20,000 tons ten years ago.

Biodiesel Output in Germany and France*

(1000 metric tons)
2002
2001
2000
1999
1998
1997
1996

Germany
550
450
340
130
100
100
60

Rapeseed Equivalent**
1469
1202
908
347
267
267
160

France
366
318
318
312
219
250
220

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Rapeseed Equivalent**
978
850
850
834
585
668
588

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EU: Biodiesel Industry Expanding Use of Oilseeds

1995
45
1994
25
1993
10
1992
5
1991
2
Source: UFOP, Prolea

120
67
27
13
5

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155
65
20
0
0

414
174
53
0
0

* German data are estimated sales; French data are quantities of biodiesel authorized to receive a reduction in the
motor fuel tax, and are approximately equal to production levels
** Converted at 2.672 tons of rapeseed per ton biodiesel
In France, the best estimates available for biodiesel production are the quantities of biodiesel authorized to receive
reduction in the motor fuel tax for the French market. (See "French Biofuel Situation," August 2003.) (You
may need to download the Microsoft Word reader.) Since those amounts are restricted, the authorized limits
are approximate production levels. Additional but lesser amounts of vegetable oil methyl ester are produced for
the chemical industry. Vegetable oil methyl ester is a useful organic solvent.
The beginning of the large increases in biodiesel production in Europe was 1993. Changes in the European
Unions Common Agricultural Policy (CAP) established a set-aside program in 1992 whereby farmers were
obligated not to grow food or feed crops on a portion of their arable crop land; however, they were allowed to
plant rapeseed, sunflowers, or soybeans for industrial purposes. The production of vegetable oil on set-aside for
use in producing biodiesel was clearly an option, and the biodiesel industry has grown rapidly in the last ten
years.
Another big boost for biodiesel, especially in Germany, came when vegetable oil prices were relatively low,
around US$400 dollars per ton, from early 1999 to mid 2002, and mineral diesel prices varied, but on average
were relatively high during this period. With biodiesel exempted from the mineral fuel tax, production began to
look very attractive, and a large number of projects were started. The French industry also benefited from low
vegetable oil prices, but the amount of biodiesel receiving a reduced motor fuel tax was, and still is, limited
according to the rules of the French program.
Currently, the European Union is in a state of over capacity, mainly in Germany, where the tax incentives were
most favorable. Many construction projects were approved in 2000, and demand for biodiesel exceeded the
available supply. Nevertheless, capacity is expected to continue to rise, albeit at a slower rate. New projects have
been announced in the United Kingdom and Portugal. The project in the United Kingdom will lead to the
construction of the European Unions largest biodiesel plant. Plant capacity would be 250,000 tons per year and
the target for beginning production is the middle of 2004. The project in Portugal is the construction of a 100,000
ton capacity plant that will use soybean oil, rapeseed oil, or palm oil depending on market conditions. Production
in this plant is also planned to begin in the middle of 2004.

European Union: 2003 Estimated Biodiesel

Production Capacity
Country
Germany
France
Italy
Austria
Denmark
United Kingdom
Sweden
Total

(1000 metric tons)

1025
500
420
50
40
5
8
2048

Source: European Biodiesel Board

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The Chemistry of Biodiesel Manufacturing

Chemically, biodiesel is fatty acid methyl ester. The chemical process for producing methyl ester is well known
and is considered quite simple. Vegetable oil and methanol are combined in a reaction cylinder in the presence of
a catalyst. In the manufacturing plants that were visited, sodium hydroxide or sulfuric acid were the catalysts, but
potassium hydroxide is also used. The reaction (called transesterification) strips the fatty acids from the glycerin
backbone of the vegetable oil molecule and attaches methanol molecules to the fatty acids. Extra methanol is put
into the reaction cylinder to drive the reaction to completion. The output from the reaction cylinder is a mixture
of fatty acid methyl ester, glycerin, leftover methanol, the catalyst, and some impurities such as free fatty acids.
The reaction chambers are a small part of the biodiesel facility. Most of the equipment, such as centrifuges and
vacuum chambers, are used in the process to separate out impurities and purify the products.

Costs and Benefits of Biodiesel

Cost of Production
It is a generally accepted view of the industry in Europe that biodiesel production is not profitable without fiscal
support. (See Cost and Return Scenario for a 60,000 ton biodiesel plant).
In the early 1990s, when the biodiesel industry was incurring heavy start-up costs, the contract price for rapeseed
used in biodiesel manufacture was much lower than for rapeseed used for food. This was possible because
rapeseed for biodiesel was grown on set-aside land where the growing of crops for food and feed are not allowed.
Farmers, with no better option, were willing to produce oilseeds (primarily rapeseed) under contract for less than
the food use market price. The amount of oilseeds, which can be grown on set-aside land in Europe, is restricted
by the Blair House Agreement. For a farmer to raise oilseeds on set-aside they must sign a contract with a buyer
who registers the contract with the appropriate national government agency. However, since 1998, contract prices
have been similar to cash prices. For example, in the central growing areas of France, cash prices have been from
40 per ton higher to 40 per ton lower than contract prices. (1 euro = 1.17 US dollars) Contract prices are set
prior to planting; so consequently, market prices can move higher or lower than any particular contract price.
Because of the European's commitment under the Blair House Agreement to limit production of oilseeds on setaside land to one million metric ton soybean meal equivalent, the expanding biodiesel industry has reached the
point where it must now use oilseeds from non-set-aside land, imports of oilseeds, or imports of vegetable oil.
(See Gains Report #GM2021)
Some biodiesel producers, when they do not have enough contract rapeseed, will purchase rapeseed oil. This
minimizes accounting difficulties that would result from trying to keep contract rapeseed separate from noncontract rapeseed.
The other reactant in producing biodiesel is methanol. Methanol is a readily available commodity in the chemical
industry. It is produced from natural gas. Methanol is valued at around 250 to 280 per ton, but the price varies
with the price of natural gas. A catalyst is necessary for the reaction, but the catalyst used varies from one
biodiesel manufacturing plant to another. Sodium hydroxide (NaOH), potassium hydroxide (KOH), and sulfuric
acid (H2SO4) are three that are used. Though chemically they remain unchanged in the reaction, the catalysts are
somewhat difficult to purify after going through the reaction chamber, so consequently they are not reused. KOH
has the advantage in that it is useful as a fertilizer and can be spread on agricultural land after the process. The
advantage with H2SO4 is that it is less expensive.
Glycerin is produced as a co-product with methyl ester, and it has economic value. One part of glycerin is
produced to every 10 parts of methyl ester. In the typical biodiesel plant, crude glycerin is produced which is
about 80 percent pure, water being the principal impurity. It has a price of about 500 per ton. With some
additional investment, crude glycerin can be converted to pharmaceutical glycerin at 99.5 percent purity, which

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carries a price quoted at 1030 per ton. Representatives from the pharmaceutical industry have warned, however,
that the demand for glycerin is relatively inelastic, and if large amounts of glycerin are produced by an expanding
biodiesel industry it will push the price of glycerin down substantially. With the low price of petroleum diesel
and high price for vegetable oil in place in May 2003, glycerin is an important component in the overall
profitability of biodiesel manufacture. As recently as 1998, the price of glycerin was not helping with the overall
profitability of the biodiesel industry, but the total still worked because of high diesel and low vegetable oil prices
at that time.
A biodiesel plant has perhaps a 10-year life expectancy for accounting purposes. A biodiesel plant with a
capacity of 60100,000 tons might cost 30 million, but subsidies may be available to defray costs. As a result,
amortization of investment for a nominal size biodiesel plant might come to 4.7 million per year.

Marketing and Competitiveness Issues

Biodiesel competes in the market with petroleum diesel. Prices are volatile, sometimes favoring biodiesel
industry expansion, sometimes not. An analysis by the Foreign Agricultural Service's office in Berlin last
year found that biodiesel prices for 100 percent biodiesel were about 7 eurocents per liter (or 10 percent) cheaper
than petroleum diesel. However, in May 2003, other sources reported that retail prices of mineral diesel were
dropping below prices for biodiesel.
The reformed Common Agricultural Policy adopted in June 2003 sets a carbon credit payment of 45 per hectare
for farmers for growing non-food crops. The payments will be for non-set-aside land only. Oilseed growers
believe this subsidy will be insufficient to induce the production of industrial crops on a sustained basis, and
believe that a 100 per hectare payment for growing non-food crops would be more appropriate.
Biodiesel in its pure form is somewhat less stable in storage than is petroleum diesel. Automobiles that run on
biodiesel often have an extra fuel filter in the fuel line to remove sediments that accumulate from the oxidation of
biodiesel. It is worth mentioning that petroleum diesel is also not 100 percent stable and does degrade in storage.
Biodiesel has a higher gel point than petroleum diesel and thus it may be more difficult to use in temperate
regions in the winter. Additives are available for both biodiesel and petroleum diesel to make them flow better in
cold temperatures, but petroleum diesel has an advantage in this area. Consequently, it is likely that pure
biodiesel will have to remain below mineral diesel in price to be competitive. Blending biodiesel with petroleum
diesel as is done in France mitigates the cold flow problem.
Biodiesel has more lubricity than does petroleum diesel; consequently, it reduces engine wear. Sulfur in
petroleum diesel also increases lubricity, but as emission standards for vehicles are becoming more stringent,
sulfur is being removed from petroleum fuels. As a result, biodiesel has some usefulness as an additive.
In Europe as elsewhere, new automobiles are sold with warranties. Warranties are invalidated if one uses
unapproved fuels. Some manufacturers have approved the use of rapeseed methyl ester as a fuel with some
models, while other manufacturers have not. For the most part, only rapeseed methyl ester, and not methyl esters
of other oilseeds, has received approval from car manufacturers because rapeseed methyl ester is what they have
tested.

The Degree of Environmental Benefits

The energy efficiency ratio of rapeseed methyl ester is considered favorable. Taking into consideration energy
used in cultivation, production of fertilizer, transportation of products to market, etcetera, the energy ratio is 1.98.
That is, the energy value of rapeseed methyl ester is about twice as great as the amount of energy it takes to
produce it. The comparable energy ratio for ethanol production is 1.2. If one includes the energy content of the
co-products, glycerin and rapeseed meal, the energy efficiency of rapeseed methyl ester is 3.45. If one also
includes the energy value of rape straw, the energy efficiency is 6.35.

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Total Energy Efficiency Variation With Co-Product

Credit Options
Co-Product Option
RME only
RME + oil meal
RME + oil meal + glycerin
RME + oil meal + glycerin + straw

Energy Efficiency Ratio

1.98
3.36
3.45
6.35

Source: Shell Global Solutions, April 2002

One of the principal reasons for the support biodiesel manufacture is getting from the European Union and
national governments within the European Union is that the use of biodiesel reduces the net production of
greenhouse gases. There is, however, a notable lack of agreement as to the amount of greenhouse gas savings that
are actually achieved. The EU Directorate General published a figure of 60 percent reduction in CO2 emissions.
A publication by Shell Global Solutions estimated a reduction in CO2 emissions of 53 percent. The Shell study
also included a rough estimate (or unproven estimate) of nitrous oxide emissions from the use of nitrogen
fertilizer, which lowered the greenhouse gas savings to 39 percent. The exact quantity of N2O emitted from a
field used to grow rapeseed remains unproven. Furthermore, N2O degrades over time as part of the natural
nitrogen cycle.

Greenhouse Gas (GHG) Savings When Rapeseed Methyl Ester

Replaces Fossil Diesel
Fuel

Fuel Energy
Value MJ/Kg

Grams GHG per

MJ

Percent Savings
versus Diesel

Diesel Combustion
Diesel Production
Total Diesel
Biodiesel Total CO2

Grams GHG
Equivalent per Kg
of Fuel
3172
137
3309
1337

43
43
43
37

74
3.2
77.2
36.1

53%

Biodiesel Total N2O

408

37

11.0

Biodiesel Total GHG

Equivalent

1745

37

47.1

39%

N2O is 310 times more effective than CO2 at trapping heat in the atmosphere.
Source: Well to Wheels Assessment of Rapeseed Methyl Ester Biodiesel in the U.K. Shell Global Solutions,
April 2002

Tax Law Affects Biodiesel Production

The Kyoto Protocol, signed in 1997, requires from the European Union a commitment to reduce, by 2008 to 2012,
greenhouse gas emissions by 8 percent from the 1990 level.
The European Union is now at the cusp of a transition from a stage of experimentation with biofuels to a stage of
early implementation. On May 14, 2003, the EU Commission adopted the Promotion Directive that sets for
member states the target that at least 2 percent of petrol and diesel used for motor transport should be from
renewable sources. The percentage will increase to reach 5.75 percent in 2010. The French Agency for
Environment and Energy Management (ADEME) estimates that the 2010 objective would require industrial
rapeseed plantings to increase from currently 3 million hectares in the European Union to 8 million hectares. The
EU Commission will monitor the member states, which will have to justify where they may not have met the
targets. This directive is for sales and not production, so a country could import biofuels rather than produce their

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own biofuels to comply with the directive. However, to entice sales, Europeans may find it not to be politically
expedient to give tax advantages to imported product rather than developing domestic biofuel industries in their
individual EU countries.
A proposed Detaxation Directive, (in Europe, the reduction of taxes on biofuels is often referred to as detaxation)
waiting for input from the EU parliament, directs that member states will be allowed (but not mandated) to give
fiscal resources to promote biofuels. It would mandate minimum levels for motor fuel that would have to be
imposed, but would allow detaxation for motor fuels from renewable sources. According to the Directive,
detaxation should be proportional to biofuel content. There should not be overcompensation for biofuels, and
support levels should take into consideration the costs of raw materials. There will be no special delegation for
each project. Analysts feel that this Directive is likely to be adopted by the end of 2003 and will be implemented
in 2004.
When the second directive is adopted, member countries must follow up with implementing laws for the
directives to have there intended effects. The new system would replace the current system where a number of
countries have been allowed special exemption to experiment with reducing motor fuel taxes in order to
encourage consumption of renewable fuels.
In France, the tax reduction for vegetable oil methyl ester is 35 eurocents per liter. For ethanol, the tax reduction
is 38 eurocents per liter. The normal mineral fuel tax in France is 58 eurocents per liter, thus the remaining tax
for vegetable oil methyl ester is 23 eurocents per liter and for ethanol it is 20 eurocents per liter. In order to
prevent excessively large budget implications, biodiesel production units must agree to production oversight and
limitations. The Government of France only allows reduced tax levels to be paid on authorized amounts of
biodiesel or ethanol from specified production facilities. Authorized production for 2002 totaled 318,000 tons
from five facilities. Biodiesel producers hope to have an official agreement of an additional amount of 70,000
metric tons by the end of 2003. There is no labeling requirement for biodiesel, so motorists in France are
normally not aware when they have biodiesel in their vehicle: however, one fuel company recently began selling a
biodiesel blend under the brand name of Ecodiesel in order to take advantage of concern for the environment.
The percentage of biodiesel in blends is normally around 2 or 5 percent, but may increase to 30 percent for
captive fleets of approximately 4,000- vehicles (e.g. city buses or highway maintenance vehicles) in 30
communities across the country.
In Italy, the 2001 Financial Law (L388/2000) introduced a 3-year study in excise tax reduction on some products
for the purpose of safeguarding the environment. Ethanol and ETBE (ethyl-tertiary-butyl ether) obtained from
agricultural sources are given a reduction in excise tax of 29 eurocents per liter. The available budget for this tax
reduction is about 15.5 million euros. This law also increased the amount of excise free biodiesel from 125,000
tons to 300,000 tons. The Ministry of Industry is authorized to start a pilot project, to promote the use of pure
biodiesel in the motor transport system. The expressed main objectives of Italian bioenergy development
programs are the decreasing of fossil fuel imports (greater than 80 percent of total primary energy consumption)
and fulfilling the commitment, undertaken within the Kyoto Protocol, to reduce CO2 emissions by a factor of 6.5
percent with respect to the 1990 level.
In Germany, the current program of development of the biodiesel industry is not a special exemption from
European Union law, but rather is based on a loophole in the law. The motor fuels tax in Germany is based on
mineral fuel. Since biofuel is not a mineral fuel, it can be used for motor transport without being taxed. Unlike
France and Italy, where biodiesel is blended with mineral diesel, biodiesel sold in Germany is pure, or 100
percent, methyl ester. There is no mineral tax on biodiesel in Germany, so when diesel prices were high and
vegetable oil prices were low biodiesel became very profitable. Additionally, there have been no restrictions on
the quantity of biodiesel that can be exempted from the mineral fuel tax, so there has been a huge investment in
biodiesel production capacity. Germany is expected to have over 1 million tons of production capacity by the end
of 2003, exceeding demand at current prices, despite the motor fuel tax exemption. Sales, which had been
accelerating rapidly, disappointed proponents in 2002 when new users began experiencing some of the fuels
limitations.

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Industry representatives point out that the current situation is one where there is a lack of uniformity in the
biodiesel fuels available to the consumer in the European Union. In France, products contain a maximum of 5
percent rapeseed methyl ester and are sold to the general public for use in cars and trucks, or in some cases as
home heating fuel according to the mixtures that each petroleum company selects. Another product for captive
fleets contains 30 percent biodiesel, and 100 percent biodiesel is available in Germany. Standard blending
throughout the European Union will be more likely should the Detaxation Directive receive final approval and be
implemented.

Over the last decade, an increasing number of vehicles are being built to consume diesel rather than
gasoline. In France, for example, 63 percent of vehicles use diesel and 37 percent use gasoline. Diesel
appeals to the European driver for a number of reasons: motor fuel taxes have been higher on gasoline
than on diesel, improved technology has overcome pollution and poor starting characteristics of diesel
vehicles, diesel vehicles tend to last longer than gasoline vehicles, diesel vehicles generally require less
maintenance, and diesel cars get better fuel mileage. With Europeans increasing their reliance on diesel,
European Union petroleum refiners are finding it necessary to export excess gasoline and import diesel
which is in short supply. The imbalance is advantageous for biodiesel over ethanol, because biodiesel
can extend the supply of diesel, whereas, use of ethanol would only require increased exports of
gasoline.
(1 euro = 1.17 US dollars)
For more information, contact Paul Provance
with the Production Estimates and Crop Assessment Division, at (202) 720-0881

Updated: September 23,

2003

Write us: Pecadinfo@fas.usda.gov

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