EU officials to decide fate of biofuels

Reuters News
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Posted: May 02, 2012 9:13 AM
EU officials to decide fate of biofuels

By Charlie Dunmore

BRUSSELS (Reuters) - Top European Union officials will attempt to strike a deal on Wednesday on how to measure the full climate impact of crop-based fuels, in a debate that could wipe out large parts of the Europe's biofuel industry.

The talks follow warnings from scientists that using biodiesel made from European rapeseed and imported palm oil and soybeans does nothing to prevent climate change and could actually accelerate it.

If, as expected, the bloc's executive Commission recommends excluding some or all of these fuels from the EU's climate targets, it would be a major blow to the green credentials of biofuels and to many growers and manufacturers around the world.

Such a proposal, if approved by EU governments and lawmakers, would also make it highly unlikely that the European Union could meet its current goals to cut greenhouse gas emissions from road transport by 2020.

The policy debate within the European Commission has dragged on for more than a year and centers on a relatively new concept known as indirect land use change (ILUC).

ILUC states that by diverting food-crops into fuel tanks, biofuel production increases overall global demand for agricultural land. If farmers meet that extra demand by cutting down rainforest and draining peatland, it results in the release of millions of tons of additional carbon emissions.

Studies carried out for the Commission showed that the risk of ILUC is far greater for biodiesel - a diesel substitute typically made from oilseeds such as palm oil - than it is for bioethanol - a gasoline-substitute usually made from grain or sugar.

By estimating the ILUC emissions associated with each specific crop, scientists concluded that most biodiesel currently used in Europe emits more carbon than conventional diesel.

POLICY PARALYSIS

The EU adopted two laws in 2009 to spur biofuel use. The renewable energy directive requires countries to achieve a 10 percent share of green energy in road transport by 2020, the vast majority of which will be met using biofuels.

The real market driver, however, was the related directive on fuel quality, which forces oil companies to cut the carbon content of transport fuels by 6 percent by 2020, again chiefly through biofuel blending.

Europe's rising demand for diesel means biodiesel is projected to account for two-thirds of EU biofuel use in 2020. If such fuels are excluded from the EU's targets, increased bioethanol production and imports are unlikely to make up the shortfall.

The realization that EU rules on ILUC could kill off much of Europe's estimated 13 billion euro ($17 billion) biodiesel industry and undermine its climate goals led to paralysis within the Commission, while officials argued over whether current ILUC models were robust enough to warrant such drastic action.

THREE OPTIONS

Biodiesel producers say there is too much uncertainty in the assumptions used to model ILUC emissions to justify immediate action and that specific rules should be delayed for several years in favor of an indirect approach.

That would involve raising the level of emissions savings that all biofuels must meet to count towards the EU's targets under both the renewable energy and fuel quality laws, currently set at 35 percent compared with conventional fossil fuels.

This is one of three options that the 27 European commissioners will discuss, according to EU sources close to the talks.

Under this option, all biofuels would have to deliver emissions savings of at least 60 percent compared with gasoline and diesel regardless of the crop used to make it, but existing facilities would be given until the end of 2016 to meet the new goal.

This option would prevent biodiesel made from palm oil or soybeans from counting towards the EU target, while most biofuel made from EU rapeseed would probably scrape over the threshold.

The second policy option, which is favored by environmental campaigners, is to penalize individual biofuels based on their crop-specific ILUC emissions, which would almost certainly exclude all biodiesel from the targets, putting them out of reach.

The third and most likely option is a compromise that combines elements of both approaches. The emission savings threshold would be raised to 60 percent in both laws, while an ILUC emission penalty for bioethanol and a higher one for biodiesel would be added to the fuel quality law.

This would remove the incentive for fuel companies to use biodiesel in order to meet their 6 percent target, in favor of fuels such as bioethanol that deliver greater emissions savings at a similar cost.

However, existing biodiesel producers would be exempt from the rules for several years, giving them more time to recoup their investment costs and switch production.

If this option wins the political backing of the EU commissioners, a final decision could still take up to two years, as any proposal would still need approval both by EU member governments and the European Parliament. ($1 = 0.7561 euros)

(Editing by Rex Merrifield and Jane Baird)