Fueling the future
As the government presents its new law on biofuels, a future where cars are powered by bioethanol or rapeseed oil is one step closer. Contrary to expectations, fuel producers are not fighting the legislation, but are enthusiastically gearing up to invest in biocomponent refineries. This has the potential to create thousands of jobs as well as a new market for agricultural produce. However, experts claim that tax exemptions and carefully prepared fiscal regulations are essential if Poland's potentially lucrative biofuels sector is to succeed.
The long battle over biofuels could be drawing to an end. Two weeks ago the government passed the draft of a new law on biocomponents and liquid fuels. Although this is just the beginning of the legislative process, the government is confident the law will go through. "We want the law to come into force on January 1, 2007," said Prime Minister Kazimierz Marcinkiewicz.
'Economic sabotage'
But not everyone is enthusiastic about the government's initiative. Marek Sawicki, a deputy from the Peasants' Party (PSL) and a member of the Sejm's Commission for Agriculture and Rural Development, claims that the proposal is "another performance meant to delay the introduction of biofuels ... We already have a law on biofuels plus there is the EU directive."
There is an existing law on biofuels dates from 2003, but not all the executive regulations have been passed and thus it has never been implemented. The EU biofuels directive is the basis on which the current government's draft proposal was created. Sawicki doesn't mince his words: "What's happening with biofuels is economic sabotage."
Although the 2003 law and the EU directive touch on the same matter, they have very little in common, as the deputy director of the Department of Land Management in the Ministry of Agriculture and Rural Development, Kazimierz Żmuda, explains. "We figured it would be easier to create a new law than try to adjust the old one to EU requirements," he said.
The proposal stipulates that by 2010 the proportion of biocomponents in transportation fuels should amount to 5.75 percent in terms of energy value. Biofuels are a mixture of biocomponents and classic liquid fuels. Bioethanol can be added to gasoline, while esters (made from rapeseed oil) are added to diesel. Existing regulations allow the addition of up to five percent of biocomponents to both gasoline and diesel. According to Robert Gmyrek, director of the alternative energy department at PKN Orlen, in Europe adding biocomponents to diesel is more popular than to gasoline. "This is due to the fact that Europe has an excess of gasoline, but deficiency of diesel oil. Adding biocomponents allows us to save on the importation of diesel fuel," he said.
Independent fuel-market consultant Paweł Mosak agrees. He claims that biofuels can also be an element of energy-security policy. "Polish oil resources can provide four percent of our annual needs and, according to the government draft, by 2010 5.75 percent of our fuels will be biofuels," Mosak said.
For personal use
One of the most controversial stipulations of the government draft allows farmers to produce biofuel for personal use. A farmer would be allowed to make 100 liters of biofuel per hectare per year. Companies from the fuel sector and experts fear that this will contribute to the growth of a black market in the fuel industry. "The present proposal of biofuel law has the potential to significantly increase the black market," the general director of Statoil Polska, Kristian Hausken, said.
"It's hard to imagine that it will be possible to control production for personal use," Mosak claims.
But Żmuda disagrees. "The black economy already exists. We definitely shouldn't fight it by imposing strict rules on the farmers," he says, referring to the requirement to store the fuel in so-called tax deposits where detailed records are kept.
But that doesn't satisfy everyone. Self-defense deputy and member of the Commission for Agriculture and Rural Development Janusz Maksymiuk wants farmers to be exempt from the tax-deposit requirement. He claims that the more fuel they produce the lower the price of biofuel will be.
The pump prices
Price, as ever, is a serious issue. "The idea behind biofuels is not to make cheaper fuel, but to utilize agriculture, guarantee a secure fuel supply and the enviromental issue," Hausken says. While farmers are likely to be the key beneficiaries of the biofuel law, that might not be the case with fuel consumers. According to Mosak it is significantly more expensive to produce biodiesel than conventional diesel. He claims that there must be some form of financial incentive to produce biofuels - either tax exemptions or lower excise taxes. "This means the average tax payer will be subsidizing biofuels," says Mosak.
Orlen's Gmyrek agrees that fiscal issues are essential to the success of biofuel. "If the Finance Minister doesn't introduce excise duty exemptions then the price of the fuel will definitely be high," he said. "According to the European Commission, rapeseed esters become profitable if the price for a barrel of oil reaches $77 [zł.250.45]. Bioethanol, used instead of pure gasoline, is profitable when the oil price is over $116 [zł.325.30] per barrel," Gmyrek explained. If the Finance Minister doesn't accept the excise reduction for biofuels the financial burden will be carried by motorists, who will just have to pay more for their fuel.
The introduction of tax breaks and exemptions on biofuels will undoubtedly lead to a reduction in income to the state budget. But that doesn't have to mean that the budget will lose in the long term. Mosak points out that farmers who produce biofuels will have higher incomes and will create new jobs. "It's hard to say whether the benefits in the agricultural sector will outweigh the lower budget income," says Mosak, claiming that no such study has been carried out. On the other hand, he argues that Poland could benefit from the reduced CO2 emissions, by selling quotas agreed under the Kyoto Protocol to countries with higher emission levels. Mosak also highlights secondary advantages of fuel with biocomponents. "We also have to look at it from an environmental and social point of view - biofuels are much cleaner than traditional fuel," he says.
Keen to go green
Fuel companies are now starting to invest in biofuel production. PKN Orlen's refinery in Trzebina is planning to increase its rapeseed oil methyl ester production capacity from the current 100,000 tonnes to 150,000 tonnes. Grupa Lotos will invest zł.70-75 million in a methyl ester refinery in Czechowice, where up to 100,000 tonnes of the biocomponent will be produced starting in 2007. These investments are in stark contrast to the opinion that the fuel industry is one of the biggest opponents to the introduction of biofuels.
"The refinery industry is not against biofuels," Gmyrek states. He explains that as the automotive industry was against them, fuel producers were concerned that car owners who experienced any problems with their engines as a result of using biofuels would be likely to sue the fuel company. Now the automotive industry's stand is changing because of the need to reduce CO2 emissions. Gmyrek adds that Orlen buys 50,000 tonnes of bioethanol annually. "We produced more than 100,000 tonnes of esters but we cannot sell it, because there are no implementary regulations" Gmyrek says.
Fleets ahead
Whether biocomponents should be added to all fuels or whether 5.75 percent should be the global share is still being discussed. "Introducing biofuels in Poland should be supported by a flexible regulation, which allows different kinds of fuels to exist on the market," says Gmyrek.
In this case 5.75 percent of the energy value of all fuels would come from biocomponents. These fuels would then either be sold at regular petrol stations or supplied to company-car fleets, state-owned corporations or public-transport networks. Żmuda thinks that supplying fleets is the future for biofuel producers. "If public transport switches to biofuels EU requirements for biofuels' share of total fuel volume will be met," he claims, recalling Słupsk, Wrocław and Kraków, where the first steps have been taken to convert public transport to the green fuel.
Job creation
Farmers are likely to benefit the most from the introduction of biofuels on a large scale. As the example of Germany shows, the renewable-energy sector created 130,000 jobs in just two years. According to the Polish Association of Rapeseed Producers (KZPR), every 1,000 tonnes of esters produced in France creates 11 jobs, in Germany 16 jobs, and in Spain 26. Poland is the fourth-largest rapeseed producer in Europe with 1.45 million tonnes produced in 2005-2006. According to estimates from biofuel producer Elstar Oils, this figure could grow to two million tonnes within four years. These estimates are based on there being around one-million hectares of uncultivated land that could be used for growing rapeseed.
But rapeseed producers do not share this optimism. The Deputy President of KZPR, Mariusz Olejnik, claims that there is no chance for rapeseed production to take off without state aid. "Our proposal is that the government should pay EUR 45 [zł.183.45] per hectare," he said, adding that a German rapeseed producer gets the equivalent of zł.1,700 in subsidies while a Polish farmer can count on only zł.500 of state aid. "Otherwise there will be no production," Olejnik stresses.
Furthermore, Olejnik thinks that esters should be exempt from excise for at least six years. "Only then will we be able to compete with the German producers," he says. If not, it may turn out that despite having great production potential, Poland will be forced to become an importer of biocomponents. Given the large amount of available agricultural land, and the fact that Poland already imports a large portion of its energy, this would be a wasted opportunity for the Polish economy.
