In the next few months, the Argentinian government is likely to impose a 10% biodiesel blending requirement for power generation, alongside an increase in biodiesel blending in its transportation sector from 8% to 10%. Publicly, the announcement is hailed as an effort to boost the nation’s rapidly expanding biofuels industry while increasing the use of green fuels. In reality, it represents a desperate pivot for the fast-rising biodiesel exporter to ramp up domestic consumption of biodiesel production as global export markets collapse.
Although demand for its use as a transportation fuel in recent years has risen, biodiesel is economically feasible for power generation in only the narrowest of circumstances. The use of liquid biofuels in Argentina’s power generation fleet, however, is another ominous signal of the shrinking market for biodiesel exports. Despite efforts like those in Argentina, globally, biodiesel’s role in power generation applications is likely to remain limited.
Ongoing debate in the European Commission (EC) has resulted in an increasingly conservative outlook for the biofuels market in the EU. Driven by efforts to protect market share for steadily increasing domestic production and to sidestep difficult sustainability issues related to foreign producers, the EC has reevaluated liquid biofuels’ role in the EU transport sector several times. The resulting policy uncertainty has led to a dramatic slowdown in biofuel project investment across the EU, according to a recent report from Agra CEAS Consulting, a joint venture between Imperial College London and Informa Plc.
Corresponding legislation to impose antidumping tariffs on Argentina and other biodiesel exporting nations has caused exports from those countries to plummet in the past year. According to the Wall Street Journal, the taxes on Argentine biodiesel range from €217 to €246 ($298-$336) per metric ton, “having the direct and immediate effect of closing the European market to Argentine biodiesel and affecting exports worth over $1.5 billion per year,” according to the country’s foreign ministry.
In mid-December, Argentina’s government filed a formal complaint to the World Trade Organization (WTO), challenging the imposition of 5-year antidumping tariffs. The complaint is the third from the leading biodiesel producer.
Argentina has relied on the EU for 90% of its biodiesel sales, worth nearly $2 billion in revenue in 2012. Built on the back of a highly efficient, modern, and large-scale soy industry, Argentina’s biodiesel output increased nearly 14-fold between 2007 and 2012. With heavy investment resulting in a fleet of production plants already in the ground, the government is anxious to find new markets for the nearly 1 billion gallons of production capacity in place if the antidumping tariffs are upheld.
Faced with the prospect of high production capacity and no outlet for its products, Argentina is trying to force excess biodiesel into its power generation sector. This may not be the worst outcome, according to a 2009 study published in Science in which the use of biofuels to produce electricity to power electric cars was deemed to be a more efficient use of farmland than producing liquid biofuels.
But while the connection between electrons derived from biodiesel-based power generation and their end-use in electric vehicles remains tenuous, the direct use of biodiesel in generator sets (gensets) is not. This makes crediting such use – such as in Renewable Portfolio Standards in the United States – more straightforward. Since many developing economies that rely heavily on refined petroleum products for primary energy use face rising diesel costs, alternatives such as biodiesel produced from domestic resources may provide an inexpensive alternative for gensets used for distributed power generation.
Still, Argentina’s power generation sector is not lacking in raw inputs. According to the Energy Information Administration, 93% of domestic generation comes from hydroelectricity and natural gas. Estimates suggest that the country holds the third-largest shale gas reserves in the world, behind the United States and China. In a country flush with resources, the channeling of biodiesel into Argentina’s power generation sector is likely to be a temporary stopgap measure to soak up fuel from the country’s growing production base.
For the time being, Argentina’s industry may be stuck between a rock and hard place. As discussed in Navigant Research’s report, Market Data: Biofuels, the EU’s biofuel broodings are likely to result in tepid demand for imports in the coming years. Meanwhile, Argentina’s heavy reliance on soy-based feedstock means that sustainability issues may hamper longer-term expansion into emerging end-markets, such as aviation biofuels.