Since the European Commission first proposed a number of changes to the European Union’s Renewable Energy Directive (RED) last October, both sides of the biofuel debate in Europe have battled their corners ahead of what are likely to be key changes to legislation for the regional and indeed global biofuel landscapes, up to the year 2020 and beyond.
A plenary vote, scheduled for September 11, will see the European Parliament agree on its position on several key components of renewables laws, before heading into three-way negotiations with the Council of Ministers and the EC.
Ahead of the vote, industry bodies, non-governmental organizations and other interested parties have pushed hard to air their points of view on a subject that has wide-reaching economic, environmental and social implications.
Both the lead Environment Committee and the Industry and Energy committee have already laid out their positions, with differences arising on three key points: a cap on conventional, first-generation biofuels; mandated targets for advanced biofuels and the definition of such fuels; finally and most controversially, the reporting and measuring of emissions related to Indirect Land Usage Change (ILUC), which are GHGs caused by the shift of land usage toward new crop-land as a result of the effect of biofuels on food prices.
The EC’s October proposal said that conventional biofuels should be limited to 5% of road transport fuel by energy content out of an overall 10% target and that ILUC factors should be reported but not included in emissions calculations. The proposal was met with howls of protest from investors, who complained that the new targets will hurt existing investments made on the back of the initial legislation. As well as this, they said, how could further R&D and capital investments into advanced biofuels be made, when the authorities are so readily willing to move the legislative goalposts?
The Environmental committee called for a 5.5% cap on conventional biofuels and for a 2% target from each of advanced biofuels and renewable energy. In addition, they said that ILUC should be fully included in emissions calculations. In contrast, the Industry and Energy committee proposed a 6.5% cap and a 2.5% target for advanced biofuels that doesn’t allow for multiple counting of certain feedstocks and so was effectively more than double that asked for by the Environmental committee. They also said that ILUC should be left out of legislation until the models used to calculate emissions are more scientifically robust.
Those championing environmental and social causes have been loudest in calling for ILUC emissions to be included directly in emissions calculations. They cite widespread deforestation and negative economic impacts for the poor in Indonesia and South America, as well as parts of Africa. It’s an emotional subject for some and representatives of NGOs from Indonesia and Sierra Leone were present at the Parliament in person on Wednesday to talk about how they perceived European renewables laws had affected some of the world’s most vulnerable people. Posters sponsored by ActionAid, Friends of the Earth, Greenpeace and Oxfam adorned nearly every lamppost in streets bordering the parliament, asking MEPs to vote ‘No food for fuel’.
If ILUC emissions were included, first-generation biofuels could become nonviable due to the 2009 Fuel Quality Directive’s (FQD) requirement for a 6% drop in road transport fuel emissions by 2020, as well as the German government’s 2015 switch to accounting for biofuel use by carbon savings rather than energy content. In fact, the EC’s proposal said that the FQD should be made stricter, in order to gain lower emissions and discourage “further investments in installations with low greenhouse gas performance.”
While European biofuel producers are understandably worried, the potential effects are further-reaching. The EU has been a key market for biofuels from the US, Indonesia and Argentina in recent years, punitive trade tariffs notwithstanding. An ILUC factor in particular would be likely to completely rule out imports of biodiesel from all three countries, if it was implemented to the degree that some are calling for.
The US, which has seen exploding RINs prices this year send the cost of biofuels there to sky-high levels, has already seen more biodiesel arrive from Europe, with EPA registered producers able to obtain RINs from animal-tallow based TME or standard biodiesel from plants which are old enough to benefit from grandfathering clauses. US Energy Information Administration numbers showed that June biodiesel imports spiked to 28.6 million gallons in June, up 12 million gallons from the previous month, with Indonesia sending nearly 11 million gallons, Argentina 5.25 million gallons and Germany alone within the EU sending more than 6.8 million gallons.
Market penetration of biofuels in Europe is currently between 5% and 7%, so a cap around those levels would not necessarily drive product out of Europe. But if the introduction of ILUC emissions made sales in Europe nonviable due to the FQD then increased shipments across the Atlantic could take place.
In the broad sense, all parties are in agreement that ILUC exists and that in principle its related emissions should be accounted for; where battle lines have been drawn is the value of ILUC emissions and whether the scientific basis of ILUC models is reliable enough to include a specific number in legislation. Both sides of the debate have wheeled out experts with the latest versions of models showing very low or very high ILUC emissions and the resulting uncertainty has been enough to lead some MEPs to adopt a wait-and-see stance.
“The science is not yet sufficiently settled to put ILUC into legislation,” said Roger Helmer, UKIP MEP at a debate sponsored by the European Biodiesel Board last Tuesday. “There is considerable uncertainty not just in the model but in the underlying estimates.”
ILUC models differ not only in methodology but in the values estimated for inputs. These include a multitude of different factors, such as forecasted crop yield improvements, types and availability of fallow and idle land available for new crops and substitution rates between crops, particularly amongst different oilseeds used for biodiesel.
One new model, presented by the European Biodiesel Board at the Tuesday debate, calculated that emissions related to ILUC for biodiesel could be as little as 2.33 grams of CO2 per mega-joule of energy used, compared with a figure of 55 grams used by the EC.
However, not all are convinced, some saying that the undisputed presence of ILUC, despite the variable estimates of its value, are due cause to slowdown the usage of first-generation biofuels.
Oyvind Vessia, a Policy Officer at the European Commission and the lead on work there on ILUC and the EC’s proposal, said that, “the uncertainty we see around ILUC estimates equally reflects uncertainty around the benefit of biofuels.”
In response to the argument that ILUC factors and a cap on first-generation fuels will damage existing investments, opponents cite a study by Ecofys, a leading renewables and sustainability research consultancy, which states that 95% of investments in conventional biofuel will have paid off by 2017, allowing new more stringent rules to come into place from 2018 onwards.
Holders of those investments would undoubtedly like to keep those assets running under current conditions, after enduring a consolidation of the industry in recent years and consequently realizing excellent margins this year following the introduction of anti-dumping duties against US ethanol and provisional anti-dumping duties against Indonesian and Argentinian biodiesel.
The threat of investment in advanced biofuels disappearing is too a real one, oil majors such as Shell and BP already announcing earlier in the year that they were scaling back investment in Europe and shifting funds towards the US, due to more favorable regulations there. Fixed mandates for advanced biofuels by volume are seen as a much more solid basis for investment than double- or quadruple-counting of advanced fuels towards a 10% mandate.
“We’ve pretty much discounted Europe when it comes to second-generation biofuels … the vast majority of our investment is directed towards the US,” said Olly Mace, BP Biofuels’ Vice President Strategy & External Affairs, in June.
A representative of Neste Oil, who have been one of the market leaders in research into advanced biofuel feedstocks, for use in their NExBTL renewable diesel, stated again at a debate last Wednesday that the company was unable to commit to the R&D and capital expenditures required to really push ahead when they are so unsure of what the commercial reality will be when products are finally brought to market in some years.
Both the Energy and Industry, and Environmental committees have called for separate mandates for advanced biofuels, which is a positive step forward for investor sentiment in Europe.
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