SME Chamber

Growing pressure to change EU biofuel policy

 Powering cars with plants once seemed like an unstoppable idea. Biofuel was sold as a way to reduce Europe's oil dependency on autocratic regimes, meet climate-change targets and help Europe's struggling farmers. But since the European Union agreed laws to promote biofuel, doubts have sprouted like weeds.














Now it looks increasingly likely that the EU will have to rewrite bioenergy laws to guard against their unintended consequences.

The problem that early biofuel enthusiasts did not anticipate was that every change in the natural world has a ripple effect somewhere else. A farmer may decide to sell 100 hectares of corn to a biorefinery instead of to a miller. With no change in land use, the greenhouse-gas emissions caused by the farming activity appear to be the same. The problem arises because the demand for that 100 hectares of food corn has not gone away.

One consequence is that maize prices rise. Another is that a different farmer may expand his farm by 100 hectares by ripping up rainforest or ploughing over biodiverse grasslands. This hidden ripple effect on the environment is known as indirect land-use change, a concept that now has its own acronym – ILUC – as well as a burgeoning scientific literature and numerous political interests.

The European Commission has until July to decide whether to amend EU legislation to take account of ILUC. According to the independent economist charged by the Commission with studying the issue, the need for action is clear. "It is obvious that they cannot neglect the fact that there is a land-use change effect [and] that it can be very strong," says David Laborde, a research fellow at the International Food Policy Research Institute (IFPRI), a research organisation dedicated to ensuring adequate food supplies based in Washington, DC.

Questionable targets

Laborde says that his findings call into question the EU target of deriving 10% of transport fuel from renewable energy by 2020. His work shows that all types of biofuel have land-use effects, but some are more dramatic than others. Biodiesel – fuels from rapeseed, maize or soya – causes more greenhouse-gas emissions than bioethanol, fuels produced from starchy or sugary crops such as sugar cane.

The problem is that Europe's transport system and political incentives are stacked in favour of biodiesel. By 2020 around four-fifths of the demand for biofuel is likely to be met by biodiesel rather than more environmentally friendly bioethanol. European farmers have rushed to plant rapeseed to meet the surge in demand for biodiesel. In contrast, bioethanol, produced in large quantities in Brazil, is subject to steep tariffs at the EU border.

Three options

In May, a draft of Laborde's study will be sent to the Commission's impact assessment board. According to people familiar with the issue, the Commission now faces three options. The first – as in all EU lawmaking – is to do nothing.

This leaves two serious options. One is to add ‘penalty points' to biofuels to counter the risks of indirect land-use change – an approach known as adding an ‘ILUC factor'. The other is to upgrade existing sustainability standards. In 2008 bioenergy legislation, the Commission set green safeguards on biofuel, requiring them to save a certain percentage of greenhouse-gas emissions when compared to fossil fuel (see box). The idea is that these percentage thresholds could be jacked up, thus making it harder for less-green biofuel to qualify – although crucially some so-called sustainable fuels could be exempted from more exacting standards.

The biodiesel industry is fiercely opposed to both these options. Such rules could have "a very detrimental impact on the overall sector". "A penalty would be totally arbitrary and would compromise the investments that have been made relying on the renewables directive. In contrast, Brazil's bioethanol industry sounds bullish. "There are a lot of opportunities. We welcome this debate in Europe. This is a chance for the Brazilian bioethanol industry to demonstrate to the world that we are a global benchmark".

A short history of EU policy on biofuel

Europe is "held hostage by oil" was the portentous conclusion of a green paper from the European Commission in 2000 that urged the EU to turn to biofuel. Biofuel is "very attractive", said the paper, also lauding its low greenhouse-gas emissions and potential to create jobs in depressed rural areas. The paper called for a target of 20% of European transport fuel from alternative fuels (including hydrogen) by 2020, in 2007 this was reduced to 10%.

Written into the legislation were also green safeguards: biofuel must save at least 35% of greenhouse-gas emissions when compared to conventional fossil fuels, and this figure will rise to 50% from 2017. But these safeguards only count direct emissions. Now it seems that 2011 will be the turning point when the EU acts to constrain indirect emissions.

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