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Billions in Support, but Biofuel Benefits 'Are Small'

22 April 2013

SWITZERLAND - European taxpayers and consumers spent between 9.3 and 10.7 billion euros subsidising biofuels in 2011 with relatively small gains for the environment and the economy, according to research issued by the International Institute for Sustainable Development.

The European Union and its member states provide financial support to the biofuels industry with the intention of reducing carbon emissions, improving rural incomes and strengthening energy security.

The support is mainly provided by setting mandates for consumption (which guarantees a market for producers, and raises prices for consumers) and exempting the industry from excise taxes.

A new report by IISD’s Global Subsidies Initiative (GSI) — an independent not-for profit research group — assesses the costs and benefits of EU biofuel subsidies in reaching their policy objectives.

Owners of farmland in the EU benefit from higher commodity prices that result from the EU’s biofuel consumption mandate, but foreign suppliers account for an ever-increasing share of the EU biofuel and feedstock markets. In particular, almost half the biodiesel consumed in the EU is either imported or produced from foreign feedstock, including palm oil.

Policy recommendations

Last October, the European Commission proposed to limit the use of food-based biofuels for transport.

Under the Commission’s plan, proposed by the French MEP Corinne Lepage, biofuels derived from food-based groups would contribute no more than five per cent of the renewable energy used for transport by 2020.

Overall, the EU is seeking to meet 10 per cent of its transport fuel needs from renewable energy by the same year.

If accepted, the Commission’s proposal would significantly limit the financial burden carried by the public, according to GSI’s research.

The EU public would save between 9.3 and 10.7 billion euros per year by 2020 if the level of conventional biofuel consumption remained at 5 per cent of energy in transport, rather than increasing to meet the 10 per cent target.

Responding to the proposal, the National Farmers' Union (NFU) said it would 'damage farmer confidence and reduce the incentive to produce for food, feed and fuel'.

The draft opinion seeks to introduce ILUC factors on biofuel production and tightens the cap proposed by the European Commission to 4.27 per cent for biodiesel produced from oil crops.

International land use modelling has provided a very wide range of results, and the NFU believes that the EU Commission has chosen one modelling result, which includes some errors that skew results against biodiesel, on which to base its proposal.

The NFU also believes this deals a blow to the confidence of UK arable production, with an estimated reduction of one third in the cropped area of EU and UK oilseed rape and the impact of losing an important rotational crop on UK wheat yields.

NFU crops board member and spokesman on biofuels Brett Askew said: “We’re seriously concerned that Ms Lepage hasn’t considered the implications of her opinion on crop productivity and biodiversity on farm. Picking winners, as she has done in proposing a cap on biodiesel production, fails to reflect the interdependence of these feedstocks on-farm.

“The decision to introduce ILUC factors to control a hypothetical conflict of food versus fuel confuses two issues of agricultural production and the original ILUC greenhouse gas savings. This approach doesn’t reflect the factors behind increasing production on farm, for all markets. Simply destroying demand will not lead to an increase in future stock levels but instead a decline in production as markets correct themselves to reflect economic supply and demand levels.”

Further Reading

You can view the full report by clicking here.

 

 

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