Pressure for EU Biofuel Target to Be Reconsidered
May 14, 2008
Biofuel suppliers should follow closely the review of the sustainability criteria and verification mechanisms set out in the draft EU Directive on Renewable Energy. Current business models may be at risk if there are big changes.Over the last few months there have been increasing calls for the European Commission to reconsider the proposed European Union (EU) target that 10 per cent of transport fuel be made up of biofuels by 2020. A hearing of the European Economic and Social Committee (EESC), an institution of the EU, has urged “extreme caution” on the role and use of biofuel. The European Environment Agency (EEA) recommends that the EU target to increase biofuel content in transport fuel be suspended. In April 2008 the UK House of Commons’ Environmental Audit Committee also called for a moratorium on policies aimed at increasing the use of biofuels. At the same time. the International Monetary Fund and the Asian Development Bank have partly blamed the shift in land use from food to biofuel production as one of the reasons for the recent dramatic increase in the price of staple foods. The international price of rice and wheat has doubled over the last year.
The main concern is whether the increase in biofuels resulting from the 10 per cent target can be implemented in an environmentally sustainable way and without disrupting food supplies to very poor countries. The European Commission has established detailed environmental sustainability criteria for biofuels in its draft Directive on Renewable Energy, as well as certain mechanisms to better ensure that the effect on food prices is monitored.
Environmental Sustainability of Biofuels
In 2007 the EEA found insufficient arable land was available in the EU for bioenergy production without it harming the environment. More recently the EEA stated that the intensification of biofuel production will increase pressures on soil, water and biodiversity, and that the 10 per cent biofuel target in transport fuel by 2020 will require large amounts of additional imports of biofuels. The EEA said that “already the accelerated destruction of rain forests due to increasing biofuel production can be witnessed in some developing countries”. The EEA noted that the sustainable production of biofuels outside of Europe is difficult both to achieve and to monitor. It describes the 10 per cent biofuel target as “overambitious” and as “an experiment, whose unintended effects are difficult to predict and difficult to control”. It recommended suspension of the 10 per cent target until a new and comprehensive scientific study on the environmental risks and benefits of biofuel is completed. The EEA also recommended establishing a new and more moderate long-term target if sustainability cannot be guaranteed.
The UK House of Commons Environmental Audit Committee has urged the UK Government to resist attempts to increase the biofuel target. The main reason for the call for a moratorium was that there were insufficient standards for sustainability and safeguards to protect carbon sinks such as forests. The Committee considered that encouraging demand for first generation biofuels was damaging, the concern being that without adequate and enforceable sustainability standards, the 2020 target could lead to further destruction of irreplaceable habitats.
What Are the Standards for Biofuel Sustainability?
The EU’s draft Directive on Renewable Energy sets out the environmental sustainability criteria for biofuels and other bioliquids, and requires implementation of a system to verify compliance with these criteria.
Failure to comply with the sustainability criteria does not mean that the biofuel is banned. It does however, mean that it is ineligible for subsidies and tax breaks in the EU and cannot be used in measuring compliance with national targets and renewable energy obligations, such as compulsory targets on greenhouse gas (GHG) emissions. Without these advantages there would be much less investment in biofuel production.
The draft Renewable Energy Directive’s sustainability criteria for biofuels include the following:
- The biofuel must achieve GHG emission savings of at least 35 per cent when compared to fossil fuel.
- The biofuel is not made from raw material obtained from land with recognised high biodiversity value such as undisturbed forest and highly biodiverse grassland.
- The biofuel is not made from raw material obtained from land with high carbon stock such as wetlands and peat deposits.
- The biofuel is made from agricultural raw materials obtained in the EU in accordance with existing EU rules on minimum requirements for good agricultural and environmental conditions.
These sustainability criteria are likely to be very carefully scrutinised. The UK Government has already said it will negotiate to ensure the sustainability standards “are made as robust as possible in respect of global environmental impact”. Other EU Member States want non-EU countries such as Brazil and Indonesia to sign and demonstrate compliance with a list of international conventions on the environment and labour protection agreements before their biofuels can have access to the advantages under the Renewable Energy Directive.
How Can We Be Sure Biofuels Are Sustainable?
The draft EU Directive on Renewable Energy lays down requirements to verify compliance with the obligatory environmental sustainability criteria for biofuels. Suppliers of biofuels must show that these criteria are satisfied. This includes the submission by suppliers of verifiable information, and independent audits of systems used so that the information and systems are accurate, reliable and fraud-resistant. Showing compliance with the sustainability criteria will require the physical tracking of biofuels so that those biofuels fulfilling the criteria can be identified. The signing of agreements with non-EU countries recognising that their biofuels comply with the draft Directive is envisaged, as long as the agreements result in accurate data and properly verified compliance with the criteria set out in the draft Directive.
The European Commission can, on its own initiative, investigate the source of a biofuel and decide for itself whether it complies with the sustainability criteria. Given the many times EU Member States have been late in implementing or have incorrectly implemented environmental and other rules, this power of the Commission to investigate could be very important. The Commission effectively becomes one of the guarantors of environmental sustainability for biofuels within the EU.
One of the main criteria for sustainability are GHG emission savings of at least 35 per cent when compared to fossil fuel. The draft Directive sets out certain default values and methods of calculating whether a certain type of biofuel reaches the 35 per cent minimum requirement. For example, biofuel made from rapeseed oil can have up to a 44 per cent saving in GHG emissions when compared to fossil fuel. EU Member States can use other values for agricultural raw materials if they can show by 31 March 2010 that soil characteristics, climate and expected raw material yields mean that GHG emissions are different to those using the allowed default values or calculation methods. The draft Directive currently has fixed default values for biofuels produced from raw materials cultivated outside the EU. There is continuing discussion amongst the EU Member States as to whether alternative methods of showing GHG emission savings can be used for certain biofuel raw materials. Indeed, the Commission has said it is open to raising the 35 per cent threshold for savings of GHG emissions to a higher figure after 2015.
The German Government is financing studies of a certification system that better guarantees compliance with the biofuel sustainability standards. The aim is to design a certification system which shows compliance of raw material use and GHG emission calculations as the biofuel moves along the value chain, for both EU and international supplies of biofuels. In the United Kingdom, the Renewable Transport Fuel Obligation (RTFO) reporting mechanism started in April 2008. The UK Government expects the RTFO mechanism to help improve data gathering on biofuels and assist in the further development of sustainability criteria.
While the draft Directive goes into detail on the sustainability of biofuels and compliance with the sustainability criteria, there remains concern that the these criteria may not be robust enough, or that the methods of calculating raw material savings in GHG emissions are not sufficiently developed.
Another concern is that even with these detailed criteria, biofuels could still displace land currently being used for food and chemical production, and that this displaced food and chemical production would move elsewhere. This “elsewhere” could be land now occupied by forest or wetlands, leading to their destruction. Because there were no studies available, this indirect conversion of land was not taken into account by the European Commission when it proposed the draft Directive on Renewable Energy.
Competition Between Food and Biofuel
The International Monetary Fund and the Asian Development Bank, amongst other international agencies, have pointed to a drift in land use from food crops to biofuel crops as one reason for the recent dramatic increase in the cost of staple food items such as rice, wheat and maize, particularly in the poorest countries. In turn, this has led to newspaper reports that, for example, the “rush for biofuels threatens starvation on a global scale”. The Downing Street Food Price Summit in April 2008 recognised the need to review the approach to biofuels and to look closely at their impact on food prices. The UK House of Commons Environmental Audit Committee raised concerns last year about the link between food prices and biofuels, with the UK Government responding that biofuels have so far played only a very small part in adding to food security problems. The UK Government points out that the demand for agricultural commodities is increasing for many reasons, including a growing world population, increasing affluence and changing diets in Asia, and poor harvests of other crops in recent years. At a speech in Brussels in early May 2008, the European Commissioner for Agriculture, Commissioner Fischer-Boel, also blamed speculation on the agricultural commodity markets as having a much greater effect on prices than a relatively minor change because of biofuel production.
The draft Directive on Renewable Energy does take account of the possible effect of the biofuel target on food production. In particular, the Directive does not allow food cellulosic material to take advantage of the permissible doubling of the contribution to GHG emission savings for biofuels made from cellulosic (second generation) biofuel materials such as corn stalks or forestry industry waste (e.g., sawdust)—only biofuel from non-food cellulosic material can do so. The European Commission must monitor the commodity price changes associated with the use of biomass for energy and associated effects on food security. The Commission must also, every two years, analyse and report on, amongst other things, the impact of EU biofuel policy on the availability of foodstuffs in exporting countries, the ability of people in developing countries to afford these foodstuffs and wider development issues. The Commission may propose corrective action if it thinks it appropriate. Under the draft Directive there is no obligation on the EU to take interim or urgent measures should an emergency in food supplies occur. This is left to other mechanisms such as emergency food aid.
In its memorandum accompanying the draft Directive on Renewable Energy, the European Commission mentions that it consulted and engaged experts to produce a study on the impact on food prices of the 10 per cent biofuels target. This study estimated that meeting the target would require an increase of the biofuel feedstock share in current global arable acreage from 1 per cent to approximately 3 per cent. The study concluded that “large impacts on food prices are hardly to be expected”. It might be noted however, that the authors of the study point out that the economic model they were using to come to this conclusion did not focus on the peculiarities of agricultural production and food production. The authors of the study say that the additional farmland needed to reach the 10 per cent biofuels target was an “enormous” area of 42.8 million hectares, even with annual yield increases of 1.5 per cent of biofuel. They also refer to studies by the Organisation for Economic Cooperation and Development of 2006 that conclude that even moderate increases in use of land for biofuels may have significant effects on land and food prices. The European Commissioner for Agriculture points out, however, that the real price of food has halved since 1975, and that the price of sugar in Brazil has gone down despite millions of hectares of sugar cane being used for biofuel production.
Conclusion
Despite the many pressures to change or at least reconsider the EU’s policy on biofuel, the European Commission can be expected to maintain the proposed target of 10 per cent biofuels in transport fuel by 2020. However, the sustainability criteria and verification mechanisms established by the draft Directive on Renewable Energy will be reassessed, and this is already happening. In particular, it seems likely a biofuel supplier will find it more difficult to show that its biofuel is “sustainable” and therefore able to take advantage of the tax breaks, subsidies and other preferential treatment available in the EU.
