What are the main criticisms economics make of EU biofuels policy?

1. What are the main criticisms economics make of EU biofuels policy? Based upon ‘Prospects for Biofuels in the EU: Imports or Local Production? By Laure Bamiere et Al.

2. The EU has set ambitious targets for the development of biofuels Motivation: Climate Change Energy Security Extra outlet for farm crops Target for 2010 is that biofuels represent 5.75% of the market for gasoline and diesel in transport. However, current share of 1.5% is less than 2003 interim targets of 2%. Bamiere offers a number of criticisms of biofuels policy

3. 1. Environment • Green House Gases: Biofuels are presented as a significant instrument of the EU strategy to reduce GHG emissions. • However, energy and greenhouse balances of EU biofuels are increasingly appearing less positive than first evaluations suggested. • The effect of biofuels on EU GHG emissions will be small, less that 1% of total EU GHG emissions. • Water: Significant amount of pesticides used for sugar beets, corn and wheat….effect of nitrate pollution from rapeseed pollution….trade off between GHG emissions and water pollution • Conservation: Ambitious targets on biofuels might go against the present incentives to promote environmental set-aside and have an adverse impact on the efforts to promote biodiversity through agri-environmental measures

4. 2. Energy security • Development of fuels is also motivated by the concern of reducing dependence on EU energy supplies • According to current trends, the EU dependence should increase in the next years to reach 65% in 2030. • However, according to analysis, the EU biofuels biofuels policy if fully implemented and respected might help savings only 3% of imported fossil oil. • Marginal contribution should be welcome but does not justify EU biofuels strategy. • Furthermore, imports would allow the EU to diversify energy sources and reduce dependence on a handful of suppliers, but not to gain more self-sufficiency in terms of energy needs.

5. 3. Competition between food and non-food use • Even though biofuels represent today roughly 1.5% of transportation fuel in the EU-25, they already have had an impact on domestic agricultural product prices, essentially on rapeseed oil and cake prices …. • This suggests that reaching the 5.75% incorporation target would have significant impacts on EU agricultural prices, notably the prices of cereals and oilseeds • A significant share of the surface devoted to arable crops would need to be diverted towards biofuels production…EU exports of cereals would decrease….imports of vegetable oil would increase…domestic prices of cereals and vegetable oils would increase….increased competition for land…changes in feed prices

6. 4. Energy competitiveness • If production grows significantly, the outlet of some of the by-products will become more limited. This means that the break-even point of biofuels, compared to fossil fuel, will increase. • Farm prices will go up, with would drive biofuels further away from being competitive with fossil fuels. • Economic costs of EU biofuels make their supply competitive only for high oil prices* • Competitiveness of European biofuels are competitive for an oil barrel of around $70 • Biodiesel without subsidies from rapeseed - $75 • Wheat ethanol - $100

7. 5. Energy efficiency • Many figures regarding the actual energy balance have circulated, ranging from very positive to slightly negative ones. • Overall most studies find that the EU production of bioethanol has a rather limited energy balance, with 1.3 ratio of fossil energy equivalent produced for one consumed, both in the sugar beet case and the wheat case, and even less for ethanol produced for corn • Regarding biodiesel the differences between the different methods are much lower, and the findings more consistent. Most studies show an energy balance much more favorable than in the case of ethanol, with between 2.5 and 3 units of fossil fuel saved for 1 used. However, it is noteworthy that the crops used for biodiesel (rapeseed and sunflower) have much lower per hectare yield than the ones used for ethanol.

8. Conclusions • Present level of EU support is hardly in line with what can be considered as a reasonable valorisation of the positive externalities. • The initial ambitious biofuel policy was largely supported by society as a whole. Indeed, the reduction in GHG emissions was seen as a legitimate reason to subsidise the use of biofuels. However, this support is beginning to wane as intensive debate has been sparked over the actual positive externalities of biofuels

9. If the EU chose to rely on its own domestic production only, satisfying the 5.75% incorporation target would require a considerable amount of land, I.e. roughly 13 million hectares or approximately 20% of the current arable land surface in the EU. • It is hard to imagine that this would only have a minor impact on market equilibria and prices. Without even mentioning the possible unwanted effects in terms of intensification or agriculture or conservation programmes

10. EU production of biofuels is likely to be met by imports….but this causes further issues regarding trade reductions, provisions and deforestation • Second generation has promise…but technical and economic uncertainties are still too high to assess future developments • These uncertainties make it problematic to assess what the future of the EU biofuels industry

12. EU rethinks biofuels guidelinesBBC News, 14th January 2008 • Europe's environment chief has admitted that the EU did not foresee the problems raised by its policy to get 10% of Europe's road fuels from plants. • Recent reports have warned that some biofuels barely cut emissions at all - and others can lead to rainforest destruction, drive up food prices, or prompt rich firms to drive poor people off their land to convert it to fuel crops. • The EU has promised new guidelines to ensure that its target is not damaging. • EU Environment Commissioner Stavros Dimas said it would be better to miss the target than achieve it by harming the poor or damaging the environment. • "We have seen that the environmental problems caused by biofuels and also the social problems are bigger than we thought they were. So we have to move very carefully," Mr Dimas told the BBC. • On Monday, the Royal Society, the UK's academy of science, is publishing a major review of biofuels. It is expected to call on the EU to make sure its guidelines guarantee that all biofuels in Europe genuinely save carbon emissions.

13. Expectations are high for second generation • However technical and economic uncertainties are still too high to assess future developments