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Q&A with Kenneth Arnold,

CEO of Memphis Biofuels

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When Kenneth Arnold opened Memphis Biofuels in 2006, he had big dreams for his state-of-the-art biodiesel plant in Orange Mound. The green fuel industry was booming, and Arnold projected an output of 50 million gallons by 2008. At the time, blended biodiesel seemed like the best alternative to straight diesel, promising to reduce carbon emissions and reuse waste products.

Fast forward to 2009. Thanks to high commodities prices and a struggling economy, the biodiesel industry is spiraling downward. Plants across the country are halting production and shutting their doors. Memphis Biofuels, which uses animal fats to produce biodiesel, is hanging on by a thread after a recent layoff of more than half the plant's staff.

Flyer: Biofuels seemed like such a good idea a few years ago. What went wrong?

Kenneth Arnold: It's a combination of high commodity prices relative to diesel and the fact that diesel prices are low. You've seen gasoline run up in the last few weeks, but diesel hasn't moved much at all.

Soybean oil and animal fat have continued to rise in price. The cost of feedstocks are driven by the higher price of corn. Animal fats are used mainly to feed other animals. They're also used in the oleo chemical industry, and they're used in biodiesel. Apparently, the demand for feed and the demand for oleo chemicals is still high enough that it's keeping prices well in excess of what we need to run. We need [animal fat] prices down to about 20 cents per pound, and they're running over 30 cents per pound right now.

Over the last two years, feedstock prices have made biodiesel not economical. How has this affected your plant?

We're shut down completely right now. We haven't mothballed the plant, but we're down to a skeleton crew. We laid off a second round of people several weeks ago. We're down to 12 people, and we had 42 at maximum.

The people who are left are in the plant providing security. We still have round-the-clock coverage maintaining the facility, but we haven't made any production in four months.

What about other plants across the country?

The biodiesel industry is running, at best, 10 percent of capacity, and that number may be optimistic. In January and February, I don't think any biodiesel was produced and sold in the United States out of production. There may have been some sold from inventory. The whole industry is on its back right now, and nothing is happening in the marketplace that's likely to change that in the short term.

Has ethanol caused problems for the biodiesel industry?

Ethanol has pushed up corn prices, which affects the cost of the [animal fat for feed], because they're comparing it directly to corn. Nobody wants to talk about ethanol anymore. So many ethanol producers have gone bankrupt and shut down. There's still a tremendous misunderstanding about biodiesel versus ethanol. They tend to lump biodiesel in there with ethanol. We were using waste products to make fuel, not food.

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