Recent developments in Croatian biofuels industry

Technical ArticlesSouth-East European INDUSTRIAL Мarket - issue 3/2008

Recent developments in Croatian biofuels industry

Velimir Segon, Researcher, Energy Institute Hrvoje Pozar, Croatia

Velimir Segon

After almost 15 years of continuos promotion of biofuels benefits and recent and still ongoing rapid development of biofuels industry in almost every European country, first amounts of biofuels are finally to be produced in Croatia. Croatia is a country with very limited fossil fuel resources. Around two third of the consumption has to be imported. Of these petroleum products needs, diesel fuel consumption for the transport sector has increased to around 1 million tons during 2005 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 between 15 to 35% depending on the region. Today Croatia is candidate country for joining the enlarged European Union with promising economic horizont. The country experienced a period of significant growth of the economy from the mid 1990’s, though it suffered a mild recession in 1998-1999. Revival started from the beginning of 2000 reaching the peak in 2002 and remaining constant with 5,2% growth rate with tourism, banking, and public investments leading the way.

Legislative Incentives and Recent Developments

The production of biofuels is seen one of the promising options to provide an integrated solution to energy, environmental and socio-economic concerns. Biodiesel production was part of the National Energy Programme BIOEN launched by the Croatian Government in February 1997. To this end, a biodiesel production feasibility study has been undertaken and is presented to Ministry of Agriculture and Forestry in 2001. In 2003 The Government of Croatia has asked UNIDO to finance and provide technical assistance to achieve the aforementioned objectives. In the frame of a preparatory assistance project phase, by the end of 2005, UNIDO evaluated the overall feasibility of introducing biodiesel industry in Croatia, provided information and knowledge to enable taking informative decision on the appropriate production chain and economic model to adopt in function 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 have been made already in 2001 - the Energy Act and the related Regulation regarding renewable energy sources clearly recognises biofuels as a renewable energy source and gives definition and classification of biofuels (including both liquid and gaseous forms) (Energy Act, Official Bulletin (O.B). 68/01). In 2003, the Subcommittee for biofuels was formed within the Technical Department 28 of the Governmental Office for Standardization and Metrology, which defined the Croatian norms for biodiesel. This practically 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 has, 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 which regulates all issues regarding the biofuels quality but also gives some indicative targets for national biofuels consumption in line with the Directive 2003/30/EC. At the end of 2005, a group of interested enterpreneurs supported with some related industries and regional governments founded the Croatian Ethanol Board with the main aim to faciliate the industrial ethanol production. Final step forward – introduction of supportive de-taxation mechanismus is expected in a very near future.

Removing of Barriers and Economic Incentives

The Croatian Government is in the process of formulating a compressive renewable energy policy, which is expected to deal with various policy issues relevant to development and a large-scale diffusion of renewable energy technologies. Financial support is recognized as an important and necessary step in making market penetration possible.

In order to increase national non-food, biofuels oriented agricultural production, it is necessary to expect some intervention from the Croatian government in the agricultural sector regarding oilseed and maize production. The measures would have to ensure, at least, the quantities of feedstock required for the planned production of biofuels, increase the yield per hectare and regulate market channels for produced feedstock. This demands formulation of a comprehensive action plan with synchronised enforcement of existing governmental tools and means of Croatian agriculture policy with some adjustment to the new issues. Therefore, the following recommendations could be pointed out:

•A 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, constantly supported by Extension Service regarding cropping techniques improvement.

•Measures to increase the yield, which is currently below average yields in EU countries, should be formulated and put in place. These include the education of farmers through the already existing Extension services and other similar agencies both governmental and non-governmental, financial and economic measures (detaxation, soft loans and other measures) aimed at the modernisation of the technology used for rapeseed production, including agricultural mechanisation, storage facilities and other.

The main factor affecting the competitiveness and profitability of biofuels production, aside from its final cost on the market, are the feedstock cost 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 alternately to increase the effectiveness of production by carefully choosing location of biofuels processing plant that will utilise modern technologies and processes with higher yields.

Having in mind the goal to establish a sustainable biodiesel production in Croatia, it will be necessary to develop and put in place a stable mechanism of financial incentives, considering its higher costs compared to mineral diesel. This would include de-taxation, which is also elaborated in this study and is in line with the described EU legislation. The current cost structure of mineral diesel in Croatia includes VAT (of 22%) as well as excise duty tax and Croatian Motorways (HAC) fee. Even though the exemption of biodiesel from these taxes would result in a direct loss to the Government, the economic output of the rapeseed biodiesel production chain, together with the necessary investments in production capacities and logistics, contributes directly and indirectly to additional Government revenue.

Additionally, the positive environmental socio-economic effects of the biodiesel production chain cannot be disregarded: lower emissions of carbon dioxide, lower local harmful emissions and increased air quality, employment creation, rural development, lower dependence on imports of fossil oil, and others. Even though these benefits were not monetarised within this analysis, they nevertheless should be taken into account when making the decision regarding the support of biodiesel production and utilisation.

New projects are developing

The first produced biofuel will be biodiesel from modest capacity, but new and exciting large scale biodiesel and bioethanol projects are already under development. New projects include biodiesel from rapeseed and waste edible oils as well as bioethanol from corn and sugar beat.

The first biodiesel production plant in Croatia, located near the city of Ozalj, started its production in May 2006. The plant of 20.000 t/yr capacity is owned by Modibit, local SME and the total investment costs for the plant were about 5 mil EUR. The main sales channel for produced biodiesel is Cro Petrol, a private company that distributes and sells vehicle fuels.

The Vitrex company, located near the city of Vukovar, started production of biodiesel from recycled edible oils in October 2006. The recycled oil is collected at 3.000 collection points accross Croatia, while the production capacity amounts to 560.000 l per month. However the collected quantities allow the operation at only 30% of the total capacity.

Another exciting project come from very east of Croatia where group of private investors plan to establish a large-scale ethanol production facility in Vukovar port (Danube river). They intend to produce ethanol from maize not only from Croatia but also from Serbia and Montenegro, Romania and Hungary. Proximity of Danube river as an excellent transportation route makes this an excellent location and reduces the cost for transport significantly.

The author Velimir Segon is a senior researcher of the Energy Institute within the BIOEN programme and his work is closely connected to the work being done within the IEA Bioenergy Task29. He worked and works within several other international bioenergy projects, including the European Commision FP6 project ‘Promotion of cost-competitive biomass technologies in the Western Balkan countries’, the UNIDO project ‘Promotion of biodiesel production in Croatia’, the FAO project ‘Development of a sustainable charcoal industry in Croatia’ and others.