MARKET DEVELOPMENT
EU Fiddling While Oil Burns - Time for Proactive Biofuels Policy
EU Fiddling While Oil Burns - Time for Proactive Biofuels Policy
30/04/2013 (TODAY Online) - Policies should focus on long-term approaches to a sustainable biofuels market development, rather than short-term reactive approaches
Europe's relationship with biofuels has been marked by dramatic turns. Biofuels for transport were almost non-existent in the European Union when, 10 years ago, the EU Biofuels Directive set voluntary targets for their use. Many political constituencies including environmentalists supported the idea and some member states offered generous subsidies; envisioning a triple win of climate mitigation, energy security and rural development as farmers and agri-businesses diversified into biofuels.
In 2009, the EU Renewable Energy Directive gave the market a boost by requiring 10 per cent of the EU's energy for transport to come from renewable sources - including but not limited to biofuels. Demand for biodiesel was particularly strong as EU tax laws and regulations – and automakers' marketing – had greatly increased the popularity of diesel vehicles. European biofuel subsidies went primarily to vegetable oils for biodiesel and less to bioethanol that can substitute for gasoline.
European rapeseed growers thrived, even as scientists warned that the modest environmental benefits of rapeseed biodiesel were not worth the high cost. When cheaper soya and palm oil imports entered the market, however, biofuels faced a backlash. The agriculture sector sought protection, while non-governmental organisations expressed concerns about environmental and food-security impacts in developing countries. They also warned about 'indirect land use change' – that even if no forests were directly cleared to grow biofuels crops, when biofuels replaced food crops in one place, land elsewhere would be converted to satisfy food demand.
Serious sustainability issues can indeed arise with such crops but the narrow focus on biofuels ignored the complexity of global commodities markets. Demand for soya is driven by soaring meat consumption while palm oil is directed mainly at food and pharmaceutical markets. Also lost in the debate was the crucial role of increased agricultural productivity or the potential synergies from co-producing multiple types of goods - food, feed, fuel and fibre - in integrated landscapes, which can reduce the extent and impacts of land use change.
Even the importance of good environmental and development governance got short shrift. The campaign against biofuels worked. Last October, the European Commission made a 180-degree turn on biofuels policy by proposing to cap the use of biofuels from 'food crops' at 5 per cent of transport-sector energy - roughly the current level. The idea is that second and third generation biofuels - from switch-grass, trees and algae - will fill the gap. But these are many years away from being economically competitive.
Therefore, with this cap, the EU endangers - or reinterprets - its own 10 per cent target leaving the status quo, conventional oil, as the biggest winner. And it strikes a blow to equity and development. Shall we continue to import oil from rich countries so they can become richer rather than taking the opportunity to import biofuels from poor countries? Wild, rapid policy shifts like this have costs. They disrupt markets, stifle innovation and undermine the EU's credibility.
The European Commission, supported by the European Parliament and the European Council needs to rise above the controversy. They must stop being reactive and make sound, evidence-based improvements to the biofuels policy. What would a smart, proactive EU biofuels policy look like? First of all, it would judge biofuels not by over-broad categories such as 'food crops' but by directly relevant measures of sustainability such as land use intensity and energy and greenhouse-gas balances.
Biofuels crops can vary tremendously by these measures; sugarcane-based ethanol, notably, has the best greenhouse gases balance of any first-generation biofuel. So good that United States law treats it as an advanced biofuel. But sugarcane is also a tropical crop that gives developing countries a competitive advantage in biofuels markets; by labelling it as a 'food crop', European agricultural protectionists can try to neutralise that advantage.
Second, a smart biofuels policy would address land use and food security more broadly, across the agriculture sector. Growing 'food crops' for biofuels does not inherently threaten food security – Europe knows this first hand. But producing biofuels sustainably does require making the most of available land, focusing on strategies for food and fuel, not food versus fuel. Indeed, clearing rainforests to plant oil palm is just as bad whether the end use is biodiesel, biscuits or cosmetics. The EU can help developing countries make their agricultural systems more sustainable by engaging directly with them – through bilateral agreements – and making strategic investments to strengthen land use regulations and build stronger governance systems.
The transformation will not happen overnight but the potential gains are huge. Third, a better biofuels policy will look beyond biofuels to the ultimate goal: a sustainable economy based on renewable resources. What this means in practice is a bio-based economy, with biofuels as one component. That raises another measure by which to judge biofuels crops: can they serve multiple purposes? Sugarcane for example can yield sugar, ethanol, cellulose and residues that can be burned for heat or electricity production.
In this context, biofuels could be a key element in sustainable development for many countries. A fourth, crucial issue is that the EU needs to stop sending mixed signals. It cannot credibly take a stand on biofuels sustainability while continuing to distort the market through agricultural subsidies and letting carbon prices plummet. Biofuels have been an easy target for advocacy groups seeking media attention but will the EU take on the status quo market forces and poor governance that have long caused deforestation, land degradation and pollution? Will it discourage further fossil-fuel development, promote energy efficiency and work to sharply reduce Europe's unsustainably high transport energy use?
There is no silver bullet: we need an array of solutions. But policy-makers need to keep in mind that while biofuels are conditionally sustainable, the fossil fuels they displace are always unsustainable. The EU faces a choice when it comes to biofuels. It can bow to political pressure, impose arbitrary constraints and throw away the good with the bad or it can be a leader. If the union combines proactive engagement abroad with sensible and more consistent market signals at home, the global and EU biofuels markets can move in tandem on a sustainable path - rather than ending up on separate and conflicting trajectories. Otherwise the combination of publicity-seeking NGOs and protection-seeking agri-businesses will ensure that the oil keeps burning while the commission keeps fiddling.
Europe's relationship with biofuels has been marked by dramatic turns. Biofuels for transport were almost non-existent in the European Union when, 10 years ago, the EU Biofuels Directive set voluntary targets for their use. Many political constituencies including environmentalists supported the idea and some member states offered generous subsidies; envisioning a triple win of climate mitigation, energy security and rural development as farmers and agri-businesses diversified into biofuels.
In 2009, the EU Renewable Energy Directive gave the market a boost by requiring 10 per cent of the EU's energy for transport to come from renewable sources - including but not limited to biofuels. Demand for biodiesel was particularly strong as EU tax laws and regulations – and automakers' marketing – had greatly increased the popularity of diesel vehicles. European biofuel subsidies went primarily to vegetable oils for biodiesel and less to bioethanol that can substitute for gasoline.
European rapeseed growers thrived, even as scientists warned that the modest environmental benefits of rapeseed biodiesel were not worth the high cost. When cheaper soya and palm oil imports entered the market, however, biofuels faced a backlash. The agriculture sector sought protection, while non-governmental organisations expressed concerns about environmental and food-security impacts in developing countries. They also warned about 'indirect land use change' – that even if no forests were directly cleared to grow biofuels crops, when biofuels replaced food crops in one place, land elsewhere would be converted to satisfy food demand.
Serious sustainability issues can indeed arise with such crops but the narrow focus on biofuels ignored the complexity of global commodities markets. Demand for soya is driven by soaring meat consumption while palm oil is directed mainly at food and pharmaceutical markets. Also lost in the debate was the crucial role of increased agricultural productivity or the potential synergies from co-producing multiple types of goods - food, feed, fuel and fibre - in integrated landscapes, which can reduce the extent and impacts of land use change.
Even the importance of good environmental and development governance got short shrift. The campaign against biofuels worked. Last October, the European Commission made a 180-degree turn on biofuels policy by proposing to cap the use of biofuels from 'food crops' at 5 per cent of transport-sector energy - roughly the current level. The idea is that second and third generation biofuels - from switch-grass, trees and algae - will fill the gap. But these are many years away from being economically competitive.
Therefore, with this cap, the EU endangers - or reinterprets - its own 10 per cent target leaving the status quo, conventional oil, as the biggest winner. And it strikes a blow to equity and development. Shall we continue to import oil from rich countries so they can become richer rather than taking the opportunity to import biofuels from poor countries? Wild, rapid policy shifts like this have costs. They disrupt markets, stifle innovation and undermine the EU's credibility.
The European Commission, supported by the European Parliament and the European Council needs to rise above the controversy. They must stop being reactive and make sound, evidence-based improvements to the biofuels policy. What would a smart, proactive EU biofuels policy look like? First of all, it would judge biofuels not by over-broad categories such as 'food crops' but by directly relevant measures of sustainability such as land use intensity and energy and greenhouse-gas balances.
Biofuels crops can vary tremendously by these measures; sugarcane-based ethanol, notably, has the best greenhouse gases balance of any first-generation biofuel. So good that United States law treats it as an advanced biofuel. But sugarcane is also a tropical crop that gives developing countries a competitive advantage in biofuels markets; by labelling it as a 'food crop', European agricultural protectionists can try to neutralise that advantage.
Second, a smart biofuels policy would address land use and food security more broadly, across the agriculture sector. Growing 'food crops' for biofuels does not inherently threaten food security – Europe knows this first hand. But producing biofuels sustainably does require making the most of available land, focusing on strategies for food and fuel, not food versus fuel. Indeed, clearing rainforests to plant oil palm is just as bad whether the end use is biodiesel, biscuits or cosmetics. The EU can help developing countries make their agricultural systems more sustainable by engaging directly with them – through bilateral agreements – and making strategic investments to strengthen land use regulations and build stronger governance systems.
The transformation will not happen overnight but the potential gains are huge. Third, a better biofuels policy will look beyond biofuels to the ultimate goal: a sustainable economy based on renewable resources. What this means in practice is a bio-based economy, with biofuels as one component. That raises another measure by which to judge biofuels crops: can they serve multiple purposes? Sugarcane for example can yield sugar, ethanol, cellulose and residues that can be burned for heat or electricity production.
In this context, biofuels could be a key element in sustainable development for many countries. A fourth, crucial issue is that the EU needs to stop sending mixed signals. It cannot credibly take a stand on biofuels sustainability while continuing to distort the market through agricultural subsidies and letting carbon prices plummet. Biofuels have been an easy target for advocacy groups seeking media attention but will the EU take on the status quo market forces and poor governance that have long caused deforestation, land degradation and pollution? Will it discourage further fossil-fuel development, promote energy efficiency and work to sharply reduce Europe's unsustainably high transport energy use?
There is no silver bullet: we need an array of solutions. But policy-makers need to keep in mind that while biofuels are conditionally sustainable, the fossil fuels they displace are always unsustainable. The EU faces a choice when it comes to biofuels. It can bow to political pressure, impose arbitrary constraints and throw away the good with the bad or it can be a leader. If the union combines proactive engagement abroad with sensible and more consistent market signals at home, the global and EU biofuels markets can move in tandem on a sustainable path - rather than ending up on separate and conflicting trajectories. Otherwise the combination of publicity-seeking NGOs and protection-seeking agri-businesses will ensure that the oil keeps burning while the commission keeps fiddling.