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Out of Gas E10 Debacle Puts the Brakes on Biofuels

An attempt to introduce the biofuel mixture E10 in Germany has been a disaster, after motorists refused to buy the supposed green gasoline. Car makers, oil companies and politicians have all tried to blame each other for the mess. Even environmentalists oppose the new fuel.

There is a lot of work to be done these days in Schwedt, a town in the eastern German state of Brandenburg, where the Druzhba pipeline -- which transports oil from Russia to Central Europe -- ends. The odor of Siberian oil hangs in the air. The Easter travel season is coming up and Germany's filling stations need gasoline. Production is in full swing at the PCK refinery in Schwedt.

Not much is going on at the bioethanol refinery, however, where two tanks are filled to capacity with up to 100 million liters (26 million gallons) of the plant-based fuel, enough to make a billion liters of biofuel mixture. But demand is much lower than expected, which is why the entire production process now has to be shifted away from E10 -- a mixture of 10 percent ethanol and 90 percent gasoline -- and back to the old super unleaded fuel.

German motorists are to blame for the commercial failure  of the supposed green gasoline. The first attempt by politicians to foist a product that is both expensive and environmentally questionable on consumers has failed. German Environment Minister Norbert Röttgen, who had earlier argued in favor of the fuel, is now as embarrassed as the petroleum industry and the auto industry.

"Consumers have made up their minds," says Volker Kauder, chairman of the parliamentary group of the conservative Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU). "With people starving in many countries, wheat doesn't belong in our gas tanks."

Expensive U-Turn

Of course, drivers are the ones paying for the setback. Oil companies, like Aral, Shell, Esso and Jet, have already raised their prices to recoup their additional costs. According to industry information, the cost of converting refineries and filling stations to E10 was in the triple-digit millions, while reversing the development is unlikely to be much cheaper.

And then there are the penalties the oil industry must pay the government now that it will not reach the legally mandated quota for plant-based fuels. An industry association anticipates penalties of up to €456 million ($552 million) for this year alone, which corresponds to about two euro cents per liter. Companies will presumably add this cost to the price of gasoline.

Motorists will also face additional costs because many cars are now only equipped to run on expensive higher-octane "Super Plus" gasoline. On balance, the cost of the E10 experiment to German motorists will likely run into the billions this year.

But the eco farce will also have unpleasant consequences for Volkswagen, Daimler and BMW. Biofuel was part of a deal that had allowed the automakers to circumvent even stricter European Union environmental protection regulations.

Sense of Uncertainty

The EU had in fact intended to require carmakers to limit emissions in their new models to an average of only 120 grams of carbon dioxide per kilometer. The plan would have been more detrimental to German auto companies than their Italian and French counterparts, which tend to specialize in smaller cars.

With the help of Chancellor Angela Merkel, the Germans negotiated a discount of sorts. European carmakers were permitted to achieve 10 grams of CO2 reduction through "supplementary measures," as it was called, such as configuring their vehicles to run on biofuel. But now that the E10 concept has been such a flop, engineers will have to come up with new ideas on how to limit CO2 emissions.

The auto company executives have only themselves to blame for the debacle. Making sure that E10 would be a success ought to have been in their best interest, and yet there was little sign of any willingness to promote the fuel. Instead, they contributed to the general sense of uncertainty about E10.

Many car owners still aren't quite sure whether their vehicle can cope with E10. The manufacturers' lists are incomplete. This confusion even prompted the German Interior Ministry to instruct its employees not to fill up their official vehicles with biofuel until further notice. The same applied to all government agencies and organizations associated with the Interior Ministry, such as the Federal Police and the German Federal Agency for Technical Relief (THW), where officials were concerned that emergency vehicles could end up stalling because of engine damage.

Lack of Trust

Automaker Saab retroactively reduced the number of E10-compatible models in its lineup. BMW felt compelled to give "more specific" consumer information, while Audi and SEAT also corrected their data.

Many German motorists found that having to compare their registration documents with lists from the Internet did not exactly inspire trust in the new fuel, especially considering they live in a country in which every chocolate bar is labeled with precise information about its ingredients.

The manufacturers didn't seem to have enough confidence in the issue themselves. Only after weeks of debate did automakers issue a liability promise for E10 damage. But motorists are required to prove that the biofuel mixture has damaged their engine. That's a "major hurdle," says Ulrich May, a lawyer for the German Automobile Association (ADAC).

One auto industry executive, who preferred not to be identified, admits that the industry "messed up" with the introduction of E10. The manufacturers, he says, allowed a feeling of great uncertainty to develop, even though almost all German-made cars can use E10 without any problems.

Green Groups Condemn E10

But most car industry representatives shift the blame to the oil industry, arguing that it ought to know how to introduce new gasoline products. The oil industry, they add, would launch major advertising campaigns if they were trying to sell, say, a new high-octane product -- something that was not the case with E10.

In fact, the oil companies had little interest in biofuel. They are required by law to use fuels from renewable resources, but they make no additional efforts beyond the bare minimum needed to satisfy the requirement.

As a result, when biofuel was introduced, each of the various entities involved chose to shift the responsibility to others: politicians to carmakers, carmakers to the oil industry and the oil industry to Daimler, Volkswagen and BMW.

Apparently no one was paying much attention to the motorists who were expected to use the fuel. Commenting on the gas station woes, Peter Blauwhoff, head of Shell's German division, says: "E10 is our Stuttgart 21," a reference to a highly controversial urban development project in Stuttgart, whose unpopularity contributed to the incumbent governor losing the state election in March.

Blessing in Disguise

From an environmental standpoint, however, it is actually a blessing that E10 is not a success with consumers. "Increasing the ethanol content of gasoline is not a sensible climate or environmental protection measure," a Greenpeace statement reads, while BUND, the German branch of Friends of the Earth, calls the measure "ineffective." According to the Nature and Biodiversity Conservation Union (NABU), "it would be better for drivers to fill up with conventional gasoline."

In a jointly funded study at the London-based Institute for European Environmental Policy (IEEP), nine major European environmental organizations found that the environmental record of fuel from renewable resources is not positive, but negative. According to the study's devastating conclusion, biofuel is "more harmful" to the climate than the fossil fuels it is supposed to replace.

According to the study's detailed calculations, up to 69,000 square kilometers (about 27,000 square miles) of forest, pasture and wetlands would have to be cultivated as farmland to satisfy the future demand for biofuel in Europe alone. This is an area twice the size of Belgium. One consequence of such cultivation would be the release of up to 56 million tons of CO2 a year, or the equivalent of the emissions of an additional 12 million to 26 million cars on European roads.

Satisfying the additional German demand for biofuel alone would require 1 million hectares (2.47 million acres) of farmland, or an area about four times as large as the German state of Saarland, which would have to be fertilized, treated with pesticides and cultivated intensively. "People who fill up with E10 are not helping the environment or the climate," says Hubert Weiger, the chairman of BUND.

In an expert report, the Office of Technology Assessment at the German Bundestag (TAB), calls for "the gradual reduction of the biofuel quota until it is completely eliminated" -- in other words, a departure from E10 and a return to the old "Super" gasoline.

Changes Already Made

But getting out of biofuel production would be complicated. The development is well underway, and both agriculture and industry have already adapted to the new course.

The EU has set itself a 10-percent target for the biofuel content of gasoline by 2020. Brazil even has plans to increase its biofuel content to 50 percent. The United States has set itself the goal of increasing annual biofuel production from 50 billion liters today to more than 130 billion liters in 2022. Washington already spends about $12 billion in government subsidies on the industry.

The subsidy race is also underway in Europe. The average subsidy for farmers in Germany is about €340 per hectare. According to a study by the environmental organization WWF, if a farmer grows biofuel plants in his fields and processes them into electricity or biogas, he can earn up to €3,000 in revenue per hectare. The risk-free business is attracting all kinds of business interests looking to make money. Farmers, big landowners, operators of ethanol and biogas facilities and fertilizer producers all stand to profit from the fabulous returns in the agricultural business.

Of course, other crops can no longer grow in fields that are now being used to grow corn and wheat for ethanol plants. Energy plants and food plants are in competition, giving rise to the question of whether plants should be used to feed people or fuel vehicles. The amount of wheat needed to produce enough E10 to fill an average gas tank is about as much as an adult can eat in an entire month.

The Wernsing group of companies, a large producer of specialty foods and salads with 2,900 employees that is based in the Münsterland region near Oldenburg in northern Germany, already complained to the German environment minister that the state of Lower Saxony is no longer producing enough potatoes -- corn production has displaced everything else, they argued. Other food producers joined the complaint. Brewery owners have also complained that their raw materials are becoming scarce. In anticipation of rising commodity prices, the president of the association of Bavarian private breweries announced that the price of a case of beer will have to go up by 30 to 50 cents soon.

Loose Rules

The German government is familiar with the phenomenon, and Environment Minister Röttgen doesn't deny that the monocultures are bad for the environment. However, he insists that only ethanol and biogas with a positive environmental record are being used in Europe, and that only certified E10 is sold at filling stations. Details are provided in Germany's new biofuel directive, which came into effect in January 2011. Under the directive, plant-based fuel can only be referred to as "biofuel" if its CO2 emissions are at least 35 percent lower than those of conventional gasoline.

In reality, however, the directive has been little more than a declaration of intent, at least until now. The problem is that a certification process for biofuel that is accepted worldwide doesn't exist yet. Different rules apply in the United States than in Brazil. Requirements range from lax to loosely defined, and there is little verification of compliance.

The plant-based fuel industry in Germany is based primarily on a certificate known as "Redcert," which the Federal Agency for Agriculture and Food officially recognized in the summer of 2010.

It's interesting to note which organizations are behind Redcert: the German Farmers' Association, the Union for the Promotion of Oil and Protein Plants, the Association of the German Biofuel Industry and the Association of the German Petroleum Industry. All have interest in biofuel becoming a commercial success, leading critics to accuse Redcert of being very limited in scope. They argue that the certification, for example, does not take into account the displacement effects that arise when a farmer grows energy plants in his fields.

Sensible Suggestions Also Opposed

The wrangling over biofuel has so greatly unnerved motorists and politicians that even reasonable proposals hardly stand a chance anymore. For example, the EU now wants fuels to be taxed in the future on the basis of how much energy they contain and how much carbon dioxide they produce during combustion. As a result, diesel would be taxed more highly than gasoline.

So far the reverse situation has applied in Germany, where diesel is subsidized, which makes no sense environmentally. But when the Brussels plans became known, the German government announced its intention to resist them. Berlin apparently fears an outcry among motorists if diesel becomes more expensive.

But the government lacks its own plan for what fuel taxation should look like under environmental criteria. As a result, it is unclear how things will proceed with biofuel.

German motorists who will be hitting the road for their Easter vacations this week are likely to be surprised by the situation at filling stations. Some are selling "Super" again, some only "Super Plus" and some are even still selling E10. The biofuel mixture is still available almost everywhere in the southern states of Bavaria and Baden-Württemberg, while it is beginning to disappear in the western state of North Rhine-Westphalia. In Hamburg, it was never available in the first place.

Translated from the German by Christopher Sultan
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