Fledgling U.S. biodiesel industry facing tough times

Workers run checks on the distillation tower of the Imperium Renewables biodiesel plant in Hoquiam, Wash.
Workers run checks on the distillation tower of the Imperium Renewables biodiesel plant in Hoquiam, Wash. Drew Perine / Tacoma News Tribune / MCT

WASHINGTON — Ten months after the nation's largest biodiesel plant opened on the coast of Washington state, its owners are facing the same financial pressures that have brought a once high-flying industry down to earth.

Imperium Renewables Inc., has delayed a $345 million initial public offering, put on hold its plans for four additional plants and trimmed its corporate staff. Its chief executive officer resigned without explanation.

The $78 million plant on the Pacific coast is still operating, even though prices of soybean oil and other vegetable oils have jumped 100 percent to 200 percent in the past year. Hopes to buy much of the feedstock from eastern Washington farmers never blossomed and, instead, the plant is using mostly canola oil from Canada.

And while biodiesel was supposed to help reduce Americans' dependence on foreign oil and cut greenhouse gas emissions, the domestic market has not materialized as expected. Virtually all of Imperium's product is being shipped to Europe.

"We are experiencing challenging times," said John Plaza, Imperium's founder and current CEO. "The entire industry is facing this."

Ever the entrepreneur, Plaza isn't about to give up. His latest venture, with the help of Boeing, is to develop and manufacture green aviation fuel.

A Virgin Atlantic 747 that flew from London to Amsterdam in February was partially powered by a biofuel produced by Imperium. It was the first such flight by a commercial airline. One of the plane's engines was powered by a mixture of kerosene, babassu oil and coconut oil. Babassu oil, from the nuts of the babassu tree, which grows in the Amazon region of South America, and coconut oil are often used in cosmetics.

"It's a hot topic out of necessity," Plaza said, adding that the green aviation fuel could be cheaper than the Jet A fuel now used and could reduce carbon dioxide emissions from jet engines by 80 percent. Airplanes could start flying regularly on biofuel within three to five years, and the Grays Harbor plant could be modified to produce it, Plaza said.

Pilots on the Virgin Atlantic flight said they noticed no drop in performance in the engine running on biofuels. Mechanics later found the engine had not been affected, said Terrance Scott, a Boeing spokesman.

"This is not about rhetoric, this is about finding a biofuel," said Scott. "We are looking for something that will offset fuel costs and burn cleaner."

Burning one pound of jet fuel now releases 3.1 pounds of carbon dioxide, Scott said. According to an Environmental Protection Agency report, aircraft currently account for about 3 percent of U.S. carbon dioxide emissions. Some scientists estimate that unless changes are made, carbon emissions from aircraft will triple globally by 2050.

Both Airbus, Boeing's main competitor, and the U.S. Air Force are working on developing biofuel. Possible sources include switch grass, algae and jatropha, a scrub bush that grows on marginal farmlands.

"It won't be a simple, cheap process," Plaza said of developing green aviation fuel.

Imperium's financial problems are not unique. Because its plant is located on the coast, it has one advantage — it is easier to ship its products to Europe than if located in the landlocked Midwest. Several biodiesel companies have recently filed for bankruptcy, some plants have suspended operations and construction on other plants has been halted.

"Some of the industry's players are facing rougher times than others," said Amber Thurlo Pearson, a spokeswoman for the National Biodiesel Board.

Theories abound as to why the cost of vegetable oils has soared. Some say farmers aren't planting as many acres of soybeans, switching to corn as demand for ethanol has grown. Of the 450 million to 500 million gallons of biodiesel manufactured in the United States, about 80 percent are made from soybean oil.

But demand for all vegetable oils is also growing globally, pushing up food prices around the world. Others believe speculators are driving up prices for vegetable oils; some think droughts in some parts of the world are responsible. Plaza and others believe the increased cost of crude oil has driven up farmers' costs for everything from fertilizer to running a tractor.

"All grain and vegetable oils are at record high prices," Plaza said. "If one goes up, they all go up."

Currently, there is a $1-per-gallon federal tax break on biodiesel. That has made the American product competitive in Europe, where demand for biodiesel is high. In 2007, U.S. producers shipped almost 300 million gallons of biodiesel to Europe, a tenfold increase over 2006. Some allege U.S. taxpayers are subsidizing cheap diesel prices in Europe.

"It is a thoroughly legal practice," said Thurlo Pearson.

But European producers are upset and have filed an unfair trade complaint with the European Commission, alleging U.S. biodiesel producers are receiving an illegal subsidy.

Both Plaza and Thurlo Pearson expect U.S. demand to grow with the passage of an energy bill last year that requires 1 billion gallons of biodiesel be produced and used in the United States by 2012.

Until then, the industry will continue to evolve.

"We need to stabilize the company, Plaza said. "But in one form or another, we will be around."

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