High costs, pollution worries hit consumers

There’s a biofuel backlash going on around the country.

Seattle Times

SEATTLE — When King County, Wash., Metro Transit signed a one-year contract last June to buy 2 million gallons of biodiesel made by Seattle-based Imperium Renewables, the agency didn’t mind paying a few extra cents a gallon for the privilege of being green.

By running all its buses on a blend with 20 percent biodiesel, Metro Transit would radically cut its greenhouse-gas emissions and help lessen U.S. dependence on foreign oil.

But in the last year, the promise of renewable fuels has lost a lot of its luster. Prices of biodiesel have almost doubled to about $6 per gallon, and many experts blame biofuel production for driving up food prices worldwide. Prominent scientists have questioned whether growing crops for biofuels produces more greenhouse gases than it prevents.

Now Metro Transit, the region’s largest consumer of biodiesel, is “taking an indefinite pause” in buying the renewable fuel, said general manager Kevin Desmond.

“We’re taking a hard look at it in terms of both its price and the science,” he said.

Biodiesel retailers are also feeling the pinch as soaring costs and slowing demand wipe out their profits. “Business is down at least by half,” said Ballard, Wash., biodiesel pioneer Dan Freeman, of Dr. Dan’s Alternative Fuelwerks. He said he’s thinking about selling part of the business to stay afloat.

Customers are having second thoughts.

Scott Redford, a Ballard landscape architect and Dr. Dan’s customer, said he considers the jury still out on biodiesel’s environmental impact. “Are we really doing the right thing? It’s going to take a while to figure it out.”

In the meantime, he’ll keep refueling his VW Golf with biodiesel, he said. “The price is disheartening, but we get over 40 miles a gallon.”

Biodiesel, which can be used in most existing diesel engines without major modifications, is made from the oils in soybeans and other crops. Another biofuel, corn-based ethanol, has become a widely used gasoline additive, now present in millions of U.S. vehicles.

The rush to produce biodiesel was a gamble, assuming that skyrocketing petroleum prices would soon make veggie fuels reasonably cheap by comparison.

And as oil prices soared past $100 per barrel in recent months — and a new closing record of $138.54 on June 6 — the biodiesel industry should have been awash in cash.

But to the surprise of the industry and its supporters, the cost of making biodiesel has outpaced the rise in fossil-fuel prices.

Soybean oil, the main raw material for U.S. biodiesel, nearly doubled in price — partly because the consumption of soy has risen globally, and partly because U.S. farmers have been switching land to more profitable corn crops, from which ethanol is made. Demand from biodiesel producers has also lifted prices, and other biodiesel crops such as canola and palm oil have quickly caught up in cost.

It now costs about $4.66 to buy enough soybean oil to make a gallon of the renewable fuel. After adding manufacturing expenses and subtracting a $1-per-gallon tax credit, a gallon of nearly pure biodiesel retails at Seattle-area stations for close to $6.

Conventional diesel, meanwhile, currently sells for about $4.80 per gallon.

As a result, many biodiesel plants around the country “are running at partial capacity or not running at all,” said Pavel Molchanov, a Houston-based analyst with investment bank Raymond James.

The shifting environment dashed the lofty plans of Seattle-based Imperium Renewables, which operates one of the nation’s largest biodiesel refineries in Grays Harbor, Wash. In January it abandoned efforts to raise $345 million in a stock offering that would have financed huge facilities on the East Coast and in Hawaii and Argentina.

Now the company is trying to ride out the crisis by exporting most of its biodiesel and seeking nonfood sources of vegetable oil, like jatropha, an oily seed that grows in barren places, said Chief Executive John Plaza.

“We still feel there are substantial opportunities for large-scale expansion,” he said. But “companies have to change with market economics ... We may not end up even pursuing that strategy.”

Some green-minded customers didn’t mind paying an extra 75 cents per gallon for biodiesel when a gallon of regular diesel cost $2, said Rob Elam, president and founder of Seattle-based Propel Biofuels, which has five local stations. But when prices top $5 per gallon, “it seems like people’s tolerance to pay for alternative fuel” drops, he said.