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Biofuels
Biofuels Industr y About to Star t in Croatia a report by
Julije Domac Energy Institute Hrvoje Pozar, Croatia
After almost 15 years of continuous promotion of the benefits of biofuels and recent and on-going rapid development of biofuel industries in almost every European country, biofuels are finally to be produced in Croatia. The first biofuel produced in Croatia will be a modest amount of biodiesel, but new and exciting large-scale biodiesel and bioethanol projects are already under development. Dr Julije Domac is a recognised international expert with more than 10 years of experience in renewable energy and energy efficiency projects. He has been the National Biomass Programme co-ordinator and Deputy Head of Department for Renewable Energy at the Energy Institute Hrvoje Pozar in Zagreb, Croatia, an international expert for the Tipperary Institute in Ireland, a project leader for the United Nations Industrial Development Organization (UNIDO), a lead expert for the World Bank, a technical editor for the Food and Agriculture Organization, an expert evaluator for the European Commission and Task Manager for the International Energy Agency. Over the last four years, his main focus has been biomass energy, especially socioeconomic modelling, biofuels, local communities and public education.
Croatia is a country with limited fossil fuel resources. Around two-thirds of the country’s consumption has to be imported. Diesel fuel consumption for the transport sector has increased to around 1.1 million tons during 2004, and more growth is expected in the future. Like most transition economies, Croatia has gone through severe changes in the labour market since the 1990s. The unemployment rate in Croatia ranges from 15% to 35% depending on the region. Today, Croatia has promising economic horizons and is a candidate for joining the enlarged EU. Croatia experienced a period of significant economic growth from the mid 1990s, though it suffered a mild recession in 1998–1999. Revival started at the beginning of 2000, reaching its peak in 2002 and remaining constant with a 5.2% growth rate, with tourism, banking and public investments leading the way. Legislative Incentives and Recent Developments
The production of biofuels is seen as one of the most promising options for providing an integrated solution to energy, environmental and socioeconomic concerns. Biodiesel production was part of the National Energy Programme – Biomass for Energy (BIOEN) in Croatia – launched by the Croatian government in February 1997. To this end, a biodiesel production feasibility study was undertaken and presented to the Ministry of Agriculture and Forestry in 2001. In 2003, the Croatian government asked the United Nations Industrial Development Organization 56
(UNIDO) to finance and provide technical assistance to achieve the aforementioned objectives. Through the framework of a preparatory assistance project phase, UNIDO had evaluated the overall feasibility of introducing a biodiesel industry to Croatia by the end of 2005. It provided information and knowledge to enable informed decision-making on the appropriate production chain and economic model to adopt in terms of available feedstock, market segments, distribution channels, promotional policies and financial mechanisms and recommended guidelines for regulatory measures to be put in place to promote biodiesel production and market development. The first concrete steps were taken in 2001. The Energy Act clearly recognises biofuels as a renewable energy source and gives definitions and classifications of biofuels – including both liquid and gaseous forms. In 2003, a subcommittee for biofuels was formed within technical department 28 of the governmental Office for Standardisation and Metrology, which defined the Croatian norms for biodiesel. Practically, this means acceptance of the EU norm EN 14214. The subcommittee also made a decision to allow the mixing of 5% of biodiesel in the standard mineral diesel fuel without special marking. In 2002, the Croatian government, based on the proposal of the Ministry of Environmental Protection and Physical Planning, adopted the regulation on quality standards for liquid oil fuels, which was last amended in August 2005. In 2005, the same ministry prepared the regulation on biofuels quality that regulates all issues regarding the biofuels quality, but also gives some indicative targets for national biofuels consumption in line with Directive 2003/30/EC. At the end of 2005, a group of interested entrepreneurs, supported by some related industries and regional governments, founded the Croatian Ethanol Board with the aim of facilitating industrial ethanol production. The next step forward – the introduction of supportive detaxation mechanisms – is expected in the near future. EUROPEAN RENEWABLE ENERGY REVIEW 2006
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EUBIA The European Biomass Industry Association
Located in the Renewable Energy House in the heart of the European Commission and the EU Parliament district, the European Biomass Industry Association is the voice of the biomass sector in Brussels. EUBIA offers 10 years of performance and experience.The activities range from project work in the fields of biomass research, development and demonstration to promotion campaigns and institutional lobbying for biomass stakeholders.These activities aim to: • Support the Members in order to achieve their national and European objectives • Provide the Members with relevant information from the EU institutions and about European Commission programs • Discuss with the EU institutions and achieve results on strategic and policy issues with relevance to the European biomass sector The overall objectives are to represent European Biomass industry stakeholders and Biomass research and development centers on the Brussels’ level, to promote their interests and to search for funding for specific actions as well as for mid- and long-term EU financial resources. Moreover, EUBIA is directly involved in international co-operation activities with third countries, e.g. The People’s Republic of China,The Russian Federation, Southern Africa and Latin American countries.
Contact details for EUBIA European Biomass Industry Association Rue d’Arlon, 63-65 B-1040 Brussels T : +32 2 400 1020 F : +32 2 400 1021 E :
[email protected] I : www.eubia.org
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Biofuels
Economic Incentives and Removal of Barriers
The Croatian government is in the process of formulating a comprehensive renewable energy policy, which is expected to deal with various policy issues relevant to development and large-scale diffusion of renewable energy technologies. Financial support is recognised as an important and necessary step in making market penetration possible. In order to increase national non-food, biofuelsoriented agricultural production, it is necessary to expect some intervention from the Croatian government in the agricultural sector regarding oilseed and maize production. Such measures would have to ensure the quantities of feedstock required for the planned production of biofuels, increase the yield per hectare and regulate market channels for produced feedstock. This requires the formulation of a comprehensive action plan with synchronised enforcement of existing
the technology used for rapeseed production, including agricultural mechanisation, storage facilities, etc. The main factors affecting the competitiveness and profitability of biofuel production, aside from its final cost on the market, are the feedstock costs and the production process yield. Clearly, to decrease the unit production costs in Croatia, it would be necessary to either use a lower-cost feedstock or to increase the effectiveness of production by carefully choosing the location of biofuel processing plants that will utilise modern technologies and processes with higher yields. On 14 May 2003, the European Commission (EC) adopted the biofuels promotion directive that sets the target for member states of what percentage of petrol and diesel used for motor transport should be from renewable sources. The percentage will increase to reach 5.75% in 2010. The EC will monitor the Member States, which, if they do not
The first biofuel produced in Croatia will be a modest amount of biodiesel, but new and exciting large-scale biodiesel and bio-ethanol projects are already under development. governmental tools and of Croatian agriculture policy with some adjustment to these new issues. Therefore, the following recommendations could be put forward: • Clear national targets for both food and non-food agricultural production, including timeframe and expected dynamics, should be established. • The incentive for rapeseed and other oilseeds, as well as for maize production per hectare, should be determined according to the desired quantities of overall production in Croatia, supported by an extension service regarding cropping techniques improvement. • Measures to increase the yield, which is currently below the EU average, should be formulated and put in place. These include the education of farmers through the already existing extension services and other similar governmental and nongovernmental agencies and financial and economic measures – detaxation, soft loans and other measures – aimed at the modernisation of 58
meet the targets, will have to justify why they have not. This directive is for sales and not production, so a country could import biofuels rather than produce its own biofuels to comply with the directive. However, to entice sales, Croatia may find that it is not politically expedient to give tax advantages to imported biofuels rather than developing a domestic biofuel industry. The detaxation directive declares that Member States will be allowed – but not mandated – to give fiscal resources to promote biofuels. According to the directive, detaxation should be proportional to biofuel content. There should not be overcompensation for biofuels and support levels should take into consideration the costs of raw materials. Having in mind the goal to establish sustainable biodiesel production in Croatia, it will be necessary to develop and put in place a stable mechanism of financial incentives, considering the higher cost of biofuel compared with mineral diesel. This would include detaxation, which is also elaborated in this study and is in line with the described EU legislation. EUROPEAN RENEWABLE ENERGY REVIEW 2006
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Biofuels Industr y About to Star t in Croatia The current cost structure of mineral diesel in Croatia includes value added tax (VAT) of 22%, as well as excise duty tax. The exemption of biodiesel from these taxes would result in a direct loss of 73 million kuna (HRK) (approximately €10 million) to the government. However, the economic output of the rapeseed biodiesel production chain, together with the necessary investments in production capacities and logistics, would contribute directly and indirectly to additional government revenue. Depending on the price scenario considered, this additional revenue would amount to 11, 13 or 15 million HRK respectively, which means that the relative tax refluxes would amount to 15.1%, 17.8% or 20.5% respectively. Additionally, the positive environmental and socioeconomic effects of the biodiesel production chain cannot be disregarded. These include lower emissions of carbon dioxide, lower local harmful emissions, increased air quality, employment creation, rural development and lower dependence
considerable savings, because Maziva-Zagreb doo has the resources for biodiesel production, such as the necessary traffic infrastructure, location, premises, energy infrastructure, sewerage system, wastewater treatment, tank area, pumping stations, laboratories, maintenance, protection control and human resources. In 2005, a similar letter of intent was issued from Tvornica ulja C epin – the largest vegetable oil producer in Croatia – and this intention was widely announced via different media channels. In 2002, this oil factory reported a net profit of 1.24 million HRK, which should be translated into some successful improvements in the structure and management of the company. The company is placed in an area related to rapeseed growing. Its manager has stated that Tvornica ulja has prepared for the complete production of biodiesel, but the exact timeframe is not known as they are waiting for the government to deliver on mineral oil excise exemption and subsidies for growing rapeseed.
As on-going development already indicates, further projects, some of them on a regional basis, could be expected soon.
on imports of fossil oil. Even though these benefits were not monetarised within this analysis, they nevertheless should be taken into account when making decisions regarding the support of biodiesel production and utilisation. New Projects
Construction works for building a biodiesel processing plant in Ozalj started in 2005 and are due to be finished in early 2006. This plant will be owned by Modibit. The main sales channel for produced biodiesel will be Cro Petrol, a private company that distributes and sells vehicle fuels. In December 2003, Maziva-Zagreb doo, a part of INA Group, the Croatian national oil company, issued a letter of intent to the Croatian government in which it expressed its readiness to start preparations for the implementation of the biodiesel production project as a member of a consortium to be formed for the realisation of this project. The proposed production facility, on the location site of Maziva-Zagreb doo, could be realised with EUROPEAN RENEWABLE ENERGY REVIEW 2006
Another exciting project is taking shape east of Croatia, where a group of private investors plan to establish a large-scale ethanol production facility in Vukovar on the Danube. They intend to produce ethanol from maize, not only from Croatia but also from Serbia, Montenegro, Romania and Hungary. The proximity of the Danube provides an excellent transportation route, which makes this a first-class location and reduces the cost of transport significantly. The production and utilisation of biofuels meets most of the demands and targets outlined in the national strategy of Croatia, which recommends adopting an integrated approach to development in the different sectors of agriculture, energy and environment. Furthermore, within its integration process into the EU, Croatia will have to comply with EU regulations related to security in energy supply and promotion of biofuels utilisation, as well as to the reductions of greenhouse gas emissions. As on-going development already indicates, further projects, some of them on a regional basis, could be expected soon. ■ 59