'Oh, crap ...' says the industrial agrodiesel investor
Small protest may be start of agrodiesel's biggest nightmare
Posted by biodiversivist (Guest Contributor) at 10:26 AM on 29 Aug 2007
A link to John Cook's Venture Blog in the Seattle P-I via a post by Glenn Hurowitz brought my attention to a guy named Duff Badgley (not to be confused with Duffman or Ed Begley). Duff is an old-school, grassroots, car-free, long-haired, bleeding-heart, dirty hippie environmentalist. His protests may very well turn out to be Imperium's worst nightmare. From an article about the filing of Imperium Renewables' IPO (initial public offering) where they must, by law, warn potential investors of known potential risks:
In its filing, the company said that palm oil is the cheapest feedstock available and noted that shifting public opinion about the use of palm oil could hurt its business.
"Unfavorable public opinions concerning the use of palm oil, soybeans and other feedstock, or negative publicity arising from such use, could reduce the global supply of such feedstock, increase our production costs and reduce the global demand for biodiesel, any of which could harm our business and adversely affect our financial condition," the company wrote.
An all-important goal in any power struggle is to gain and then hold the moral high ground.
Bush's handlers have gained much of the a high ground in the ethanol debate by planting the image of small farmers finally being able to feed their starving families while simultaneously sticking it to "turrists." But when your feedstock comes from other countries, that strategy won't work. The industrial agrodiesel industry could promote how they are creating not only domestic jobs at their facilities, but also jobs for poor people abroad. Anticipating this, I would suggest that those domestic jobs are essentially welfare from the dollar-a-gallon government subsidy, paid for by taxes using money borrowed from China. In addition, this article in Utne (via Karen Orr) suggests that the overseas jobs issue may also come at a price:
Rural eastern Paraguay was once flush with jungles, small farms, schools, and wildlife. Now it is a sea of soybeans. The families, trees, and birds are gone. The schools are empty. The air is filled with the toxic stench of pesticides.
To date they have been doing their share of infighting over profits. Dr. Dan (Freeman) quoted in the Seattle Weekly:
If you're not doing it (producing biodiesel) sustainably, you're doing it irresponsibly. And that will damage both the industry and the environment.
Some more interesting quotes from that article:
Asked if he cares what kind of oil the fuel is made from -- soy? canola? palm? -- Chamberlin is ambivalent. "It's doesn't matter as long as it's biodiesel," he says.
"Fuck yeah, it matters," counters Nico Juarez, as he fills up his Chevy van with biodiesel across town at Laurelhurst Oil. "If it was my way, it would be all dumpster oil. You can't get any more local, more recyclable than that."
Mr. Chamberlin sounds like one of these quasi-religious biodiesel enthusiasts I keep talking about.
Dan Freeman is founder of Dr. Dan's biodiesel, and he was the first guy to jump on the bandwagon back in the days when our local politicians were touting how it was going to be made by Washington State farmers. I once rode my bike past his original pump in Ballard where I found a guy filling up his Volvo. I had asked him about the brown smoke pouring from his exhaust and he told me, "Well, at least it's carbon neutral and, like, totally non-toxic."
Dan has since expanded his operation. The picture at the top of this post was taken at a local coffee shop where he has placed another self-serve biodiesel filling station. This device was custom built and must have cost a small fortune, suggesting that Dan has taken on debt in an attempt to compete with the big boys. The problem is that Dan's fuels are no more environmentally friendly than the big boys' are -- maybe even less so, if the big boys are presently using canola from Canada (three times more efficient) instead of soy from the Midwest or God-knows-where. What Dan needs to do is find a source of recycled grease. This would give him a huge advantage, regardless of cost. The market for that has also probably gone ballistic. I fear it is only a matter of time before the small guys are all bought up for chump change (a million here, a million there).
I would not lose much sleep over all of this if I were one of the profiteers. Every politician in the country, from the federal level to the local, is backing this industry with billions. In fact, one of the bees in Duff's bonnet was the recent decision to invest $10 million of Seattle's pension fund, not in biodiesel in general, but in Imperium specifically:
After the policy change, the city's retirement system invested $10 million in Imperium Renewables Inc., a private biodiesel startup ... the retirement system could hit a home run by getting a big return on its money.
...
Nonetheless, the appearances are unsettling. Imperium is a Seattle-based company in the alternative energy field, a darling industry of the moment. We wish Imperium well, but we also wonder: Why is a biodiesel startup more suitable for $10 million in pensioners' money than an established company in a more mature industry?
Obviously, the city isn't doing enough by buying up the fuel at whatever cost to put in their buses. You really should take the time to click on this video link from a couple of years ago when the game plan was to boost our local economy by growing our own biofuel. In the video, Ron Sims, a local politician who is honest, dedicated, and as well intentioned as they come, says: "No need to import oil, our supply can be homegrown as oil seed crops right here in Washington State (applause) as we can tell anybody, there is no reason not to use biofuel, no reason."
And speaking of worst nightmares, this link, titled "Renewable Diesel: Biodiesel's Nightmare," from GreyFlcn suggests why this investment may bomb big time, becoming yet another poster child for why government needs to get out of the business of picking winners for us:
With the exception of small biodiesel producers using local and distributed biodiesel feedstocks such as waste vegetable oil from restaurants, I expect that petroleum refineries will end up having an economic advantage making renewable diesel in comparison to conventional biodiesel producers. This means that commodity oils, and fats available in large enough quantities to interest refineries will be bid up in price to a point where less efficient biodiesel producers [like Imperium] will be unable to operate profitably.
All of this may happen remarkably quickly as well. ConocoPhillips and Tyson say that their deal could ramp up to 175 million gallons by 2009, or about 10% of the United States' 2006 biodiesel production. How soon will refineries be competing directly with biodiesel producers for soy and other vegetable oils?
While we can only speculate about the relative economics of renewable diesel and biodiesel, having a new competitor cannot be good for the biodiesel industry. Biodiesel producers might be sustained by federal biodiesel tax credits, but depending on government subsidies is not a sustainable business model, especially when you are competing with an industry with a long track record of successful lobbying.
The likely winners I see are the suppliers of feedstock. When the deal was announced, a Tyson spokesman said he expected the deal to increase annual earnings by between $.04 and $.16 per share [in other words, higher food prices].
Imperium is rapidly heading for that space between a rock and a hard place. Not only are they buying next to none of their feedstock from Washington State, they are not even buying it from American farmers. At least they're still getting it from the same continent (canola in Canada). Feedstock has become hard to find, and the result is rising costs. That's called economics 101, which is a class our politicians (federal and local) have apparently never taken.
Eventually, they will be forced to take shiploads of soy oil from places like South America, or palm from Indonesia, and when that happens the shit will really hit the fan -- especially if they get caught trying to unload those tankers in the middle of the night.
One early move to gain the high ground by Imperium is to invest in research into other feedstocks: (algae, for example). It will be years, possibly decades, before algae will ever (if ever) be commercially produced, so it really is not an answer to their rapidly growing feedstock dilemma; but in the meantime, it will make good PR to battle those damned grassroots hippies.
I don't think Seattle's politicians, like most around the world, are up to the challenge being presented by peak oil and global warming. The existing political system does not have an advisory system capable of feeding the politicians the data they need to make wise decisions. They obviously are not aware of the complexities. Their existing advisers (assuming they have any) are to date doing a really poor job. If the article in Science showing agrofuels are worse than petroleum has any validity, this agrofuel monster is going to rapidly eat what is left of our biodiversity carbon sinks -- making even coal look tame.
On one hand it seems unlikely that Duff's efforts will make a dent against this kind of money and power, but then again, why has Imperium gone from publicly stating that they will use 30 percent palm, to using 20 percent palm, to using "presently" only Canadian canola, if this rag-tag band of grassroots environmentalist doesn't have them worried?
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