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Clean burning bio-diesel source under our noses

SCMP, Eric Ng, 2010-2-20

Every day hundreds of tonnes of waste cooking oil, grease and animal fat are discarded by Hong Kong’s 20,000-plus restaurants. The real waste is that it could be used as clean fuel in the city’s vehicles.

Some of the oil and fat is illegally smuggled to the mainland to be recycled as cooking oil, consumption of which is known to raise the risk of heart disease and cancer. But most of the material ends up in landfills.

Waste oil and fat can be processed into bio-diesel, a fuel that is cleaner burning than fossil fuel diesel, with no sulphur and much lower carbon gases and particulate emissions.

In Europe and the United States, government support has resulted in a vibrant bio-diesel industry, with most of the feedstock coming from plant oil, waste cooking oil and animal fat. But Hong Kong’s government is dragging its feet on similar measures, despite the fact bio-diesel could help improve the city’s dire air quality.

Germany requires diesel sold in the country to contain at least 4.4 per cent bio-diesel. In Spain, the ratio is 3.9 per cent and 7 per cent in France.

Other than a duty-free policy on bio-diesel and a new law passed last month stipulating the quality of bio-diesel, the Hong Kong government has yet to push through more aggressive policies to spur bio-diesel consumption.

The legislation, to take effect on July 1, requires bio-diesel sold on the market to comply with European EN 14214 standards. The statute aims to shore up consumer confidence and clamp down on illicit product.

But critics say more needs to be done by the government. One key measure needed is the mandatory blending of bio-diesel with fossil fuel diesel, something that has already been adopted in Malaysia, the Philippines, Taiwan and Thailand. The government also needs to mandate the use of bio-diesel in its own fleet of vehicles.

Despite the lack of local government support, the allure of future profits has attracted investors to the nascent industry. Several bio-diesel plants have already been built.

The biggest drawcard is Hong Kong’s hefty tax on fossil fuel, a hands-off policy on fuel pricing and the duty exemption on bio-diesel. That leaves plenty of profit margin for the clean fuel’s producers, provided they can get sufficient feedstock and open up sales channels.

In many developing nations, government fuel price controls leave less room for profits from bio-diesel.

Sha Tin-based Dynamic Progress International was the first company in Hong Kong to set up a bio-diesel plant two years ago. The company, 51 per cent-owned by listed electronics products maker Alltronics Holdings, started operating its plant in the government-built waste recycling EcoPark in Tuen Mun in September 2007.

Alltronics chairman Lam Yin-kee said that the plant had the capacity to produce around 16,500 tonnes of bio-diesel a year, a fraction of the around 4.5 million tonnes of diesel fuel consumed in Hong Kong annually.

The company in 2008 counted Kwai Fong’s Metro Plaza shopping mall and New Town Plaza in Sha Tin among its first sources of waste cooking oil, and supplies bio-diesel to two construction firms.

Dynamic executive director Steve Choi declined to provide updates on the plant’s utilisation and sales figures, or its sources of material and clients. He said he did not want his rivals to know about his business secrets, but added that the government can do more to promote bio-diesel usage.

According to Alltronics’ financial statements, the bio-diesel plant’s sales amounted to HK$207,000 in 2008. In last year’s first-half, it recorded sales of HK$1.08 million and an operating loss of HK$5.41 million.

Choi said instead of going through the time-consuming legislation process, it would be more efficient for the government to use other methods to promote the industry. That could include giving fuel distributors that blend bio-diesel into their fossil fuel diesel higher priority in winning tenders to operate fuel stations.

“The government doesn’t need to do a lot, just administrative measures can do the trick … we don’t need legislation,” he said. “We have already waited six years for the bill on  <147,1,0>bio-diesel quality specification to go through the Legislative Council … how many decades are there in one’s lifetime?”

A spokeswoman for the Environmental Protection Bureau said blending more than 5 per cent of bio-diesel into fossil fuel diesel could result in “incompatibility problems” in car engine components.

“That is why we need time to develop a well balanced regulatory framework involving consultation with relevant stakeholders including bio-diesel suppliers, oil companies, vehicle suppliers and the transport trades as well as the environmental affairs panel of the Legislative Council,” she said.

The government was exploring ways to promote the use of bio-diesel in Hong Kong, she said, with the first step being to promote diesel containing up to 5 per cent bio-diesel in the government vehicle fleet.

“The EPD is consulting various departments on the compatibility of their fleet and plants/machines with [such diesel],” she added.

Andrew Kwan Ming-tak, chief executive of Champway Technology – Dynamic’s rival in the EcoPark – said the government’s classification of bio-diesel as a dangerous good had hampered its sales in the mass consumer market.

This means it can only be distributed in places that meet fire safety standards such as petrol stations, which require investment of over HK$100 million each to build.

Given Hong Kong’s vehicle fuel market is dominated by four big oil companies, and there is a lack of mandatory bio-diesel blending, there is little incentive for people to buy bio-diesel.

“While sales to large transportation companies with big fleets of vehicles are possible, since they buy diesel in bulk over long term contracts at hefty discounts from oil firms, it is difficult for small bio-diesel producers like us to compete on price,” Kwan said.

Champway hopes to obtain all of the more than 10 government licences and permits needed to start up its bio-diesel plant next month, with a goal to break even in three years. The project is partly backed by Goldsland Holdings, a unit of state-owned Guangdong Foreign Trade Group.

Champway plans to build a 29,200 tonne-a-year plant with an investment of over HK$50 million. Capacity can be expanded to 109,500 tonnes with an additional investment of around HK$100 million, Kwan added.

However, it expects to be able to collect only 20 to 30 tonnes of waste oil a day in the short term, around a third of the plant’s initial capacity. It faces keen competition from existing waste oil collectors, which offer to pay restaurants for their oil. Some of this oil is believed to be sold illegally to the mainland to be re-used in cooking.

Kwan suggested that the government designates waste cooking oil as specialised waste that needs to be collected or dumped by licensed operators, in order to eradicate illegal smuggling of waste cooking oil to the mainland. He also said the government could consider allowing restaurants to get reductions on their wastewater discharge fees, if they properly disposed of a certain amount of waste oil properly.

Both Dynamic and Champway will face competition from ASB Biodiesel (Hong Kong), majority owned by the Middle East’s Al Salam Bank-Bahrain and six strategic partners.

ASB expects to complete a 100,000 tonne-a-year bio-diesel plant in an 18,000 square metre site in Tseung Kwan O Industrial Estate this year.

The project’s other shareholder is Hednesford, a Hong Kong company headed by Sjouke Postma, a Dutchman who has lived in Hong Kong for over 20 years and has worked on the project’s development for over a decade.

With an investment of US$100 million, the plant will use technology from Austria, which enables it to use multiple feedstocks, including waste cooking oil, grease trap waste, animal fat and palm fatty acid distillate.

Grease traps are plumbing devices that catch grease before kitchen waste water enters municipal sewage systems.

ASB chief executive Tom Uiterwaal said the plant’s output would be sold to both the European and Hong Kong markets.

The proportion of sales in the domestic market will depend on how soon the government implements a mandatory minimum bio-diesel blending policy, he said.

“In Hong Kong, a lot of roadside pollution comes from heavy commercial vehicles which can’t be solved by introducing electric cars. Bio-diesel is a solution to help solve Hong Kong’s air pollution problem.”

In Europe, bio-diesel consumption took off about five years ago due to the blending requirement. Consumption is projected to grow 14.3 per cent this year to 12 million tonnes.

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