Are we getting overcapacity of biodiesel?

The European Union's dream of using vegetable-based diesel fuel in cars to cut oil imports and the pollution that causes global warming is turning sour. European companies rushed to make biodiesel out of a range of things, including rapeseed crops and used McDonald's frying oil.

We do have our national plans for producing cellulose biodiesel. All the major Finnish forestry companies are looking into this possibility or opportunity.

The first thoughts, that low raw-material costs and generous tax breaks meant margins were high, are not working up against reality anymore. Since January, prices for the crops that make most biodiesel have doubled, driving the cost of a ton of biodiesel up 50%, to around $1,440 a ton, or about $4.80 a gallon.

Prices for regular crude-oil-based diesel have risen sharply, too, but only to $840 a ton, or $2.80 a gallon. Biodiesel has become more expensive for oil companies to buy than fossil fuel, and they are cutting back.

Green lobbies are also turning against biodiesel. They now say that growing crops for biodiesel puts too much pressure on land and food prices. Europe produces 80% of its biodiesel from rapeseed, a distinctive, yellow-flowered crop.

Environmental groups also oppose imported palm-oil-based biodiesel from countries such as Malaysia and Indonesia, saying the rush to grow more oil palm trees is causing deforestation. Neste Oil has to face increasing pressures from environmentalists.

• The world consumed only nine million tons of biodiesel last year.
• Europe's producers found buyers for just five million tons.
• The trend is at odds with conventional wisdom that rising oil prices make green energy more attractive.
• By last year, Europe's annual capacity to make the fuel had climbed to 10 million metric tons from two million tons in 2003.