EU cushions biodiesel from damning carbon research

BRUSSELS, (Reuters) – The EU will protect existing  investment in its $13 billion biodiesel sector even as it acts  on new evidence that suggests making the fuel from food crops  can do more harm than good in fighting climate change.

Philippe Tillous-Borde

The environmental arguments in favour of using biodiesel were thrown into doubt last week by a series of leaked European Union reports, revealed by Reuters.

The reports said using Asian palm oil, South American  soybeans and EU rapeseed to make biodiesel has a bigger overall  impact than conventional diesel on climate change, partly due to   forests or wetlands being destroyed to grow replacement food.

European Union policymakers are preparing a political  compromise that will safeguard existing biodiesel investments, having baulk-ed at penalising individual biofuel crops.

While biodiesel producers will be given time to realise a  return on the massive investment of recent years, the latest  scientific findings are likely to lose them market share in  coming years to bioethanol and advanced biofuels, which the  reports found to be generally preferable.

Senior European Commission officials met in Brussels this  week to debate policy options for addressing the indirect  impacts of the bloc’s biofuel target, which aims to raise the  share of biofuel in road transport to around 10 percent by 2020.

With biodiesel representing about 80 percent of Europe’s estimated $17 billion market for biofuels and the bloc dependent on diesel imports to meet rising demand, the officials agreed to  delay any action that could kill off the biodiesel sector.

“I think they are going to arrive at a political compromise,” Philippe Tillous-Borde, chairman of the EU’s  largest biodiesel producer, Diester Industrie, told Reuters.

Tillous-Borde and other biodiesel producers insist the  science on the indirect impacts of biofuels is uncertain and  still evolving and that it would be premature and unfair to  regulate them out of existence now.

This argument has won support within the Commission, with  the EU’s top farm official among those who argued against  redrawing the investment map for biofuels overnight.

The Commission is due to adopt its proposals for approval by EU governments and lawmakers after the European summer break.

POLICY OPTIONS           

The dilemma facing EU policymakers concerns a relatively new  concept known as indirect land-use change (ILUC), which  challenges the notion that biofuels only emit as much carbon  when burned as they absorbed during growth.

ILUC means that if you take a field of grain and switch the  crop to biofuel, somebody, somewhere, will go hungry unless  those missing tonnes of grain are grown elsewhere.

If the crops making up the shortfall are grown on farmland  created by cutting down forests or draining peat land, this can  pump out enough climate-warming emissions to cancel out any  benefits from biofuels.

The Commission considered several options proposed by  experts to address ILUC, including a direct one that penalises  individual biofuel crops according to their role in driving land  use changes, which would have hit biodiesel hardest.

But EU sources said the Commis-sion dismissed this option in  favour of a second, indirect, approach, which involves raising  the current carbon-saving threshold — compared with fossil fuel  — that all biofuels must meet to count towards the EU’s target.

This option penalises all types of biofuels equally and will  therefore minimise short-term damage to the biodiesel sector.

Commission officials say this is justified because the huge  private investment in biodiesel production in recent years is  largely the result of the EU’s biofuel mandate and any shift in  the policy must be gradual to avoid widespread bankruptcies.

Critics say this approach ignores a growing expert consensus  that various biofuel crops have vastly different ILUC impacts.

“I fear a political compromise,” said Bas Eickhout, a Dutch  Green member of the European Parliament who led research into  the land-use change impact of biofuels.

“I’m negative about this solution of raising the threshold  for all biofuels, (because) you’re not distinguishing between  crop types. There are good crops and less good crops, and the  policies need to take account of that,” Eickhout told Reuters.

EU bioethanol producers, who would benefit more from a  direct approach to ILUC than under the compromise option, are   undecided about whether to argue for a crop-specific approach.

NEXT GENERATION           

While the impact of the EU proposals will not be as negative  for biodiesel as the sector had feared, some types of production  may yet be excluded — depending on how high the Commission  raises the carbon saving thresholds.

The current limits require all biofuels to deliver carbon  savings of at least 35 percent versus fossil fuel by 2013,  rising to 50 percent in 2017.

“If we go from 35 percent to 45 percent in the short-term,  that would be acceptable. If we go above that, It would be  difficult,” Tillous-Borde said.

“If for the 2017 horizon, which was for 50 percent, we go  from 50 to 60 percent, we will find a way to achieve it.”

With current production processes, even at 60 percent  biodiesel made from imported soybeans and palm oil or European  rapeseed would be excluded, according to one of the leaked  reports — a Commis-sion impact assessment of the policy options.

“Note, however, that rapeseed is not very far from meeting  the threshold, which implies that low-emitting producers of  rapeseed might still be able to comply (after 2017) if their  direct preformance is improved,” the report said.

The prospect of excluding imported vegetable oils from  counting towards the EU biofuel target may appeal to domestic  producers, but major exporters such as Malaysia and Brazil could  be expected to challenge such a move.

While Europe’s biodiesel sector is likely to be granted a  temporary reprieve by Brussels, its longer term prospects have  been seriously undermined in the ILUC debate.

This could have a major impact on the direction of  investments in low-carbon energy sources by major oil companies  such as BP and Royal Dutch Shell <RDSa.L>.

Biodiesel’s loss would create gains for major EU bioethanol  producers such as Abengoa Bioenergy and Tereos  Internacional SA .

Ultimately, the ILUC debate will accelerate the switch to  advanced biofuels made from algae or household waste, which do  not require land, boosting companies developing them, such as  Danish enzymes producer Novozymes <NZYMb. CO>.

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