Biofuels - Key Issues for Global Sustainable Production and Trade

Biofuels: Key Issues for Global Sustainable Production and Trade Annie Dufey IIED ”Seminar: Biofuels Business Opportunities in Argentina” London, 11 December 2007 What are (liquid) biofuels?  Biofuels produced from biomass for uses such as transport, heating, electricity and cooking  First Generation:  Bioethanol - alcohol produced from starchy crops (sugarcane, maize, sugarbeet, cassava, wheat, barley, sweet sorghum...)  Biodiesel - produced from oily crops and trees (rapeseed, oil palm, soy, coconut, jatropha) and animal fats, waste oil  2nd Generation: not yet comercially available  E.g cellulosic bioethanol/ biodiesel based on biomass gasification – produced from forestry products, grass, organic waste A policy-driven market Diversification, value addition  Setting of ambitious national policies to include biofuels within energy portfolio (transport)  EU: 5.75% by 2010 / 10% by 2020  US: 35 billion gallons by 2017  Also in several developing countries (e.g Latin America, Africa and Asia) Global Trends: bioethanol Global Ethanol Production (Million liters) 60,000 50,000 40,000 30,000 20,000 10,000 0  ~ 93% of global biofuel     production in 2006 20% annual growth since 2000 ~ 3% petrol market 40% each of sugarcane and maize Developing countries also experimenting with cassava, sweet sorghum 1980 1985 1990 1995 2000 2005 Top Bioethanol Producers 2006 Canada 1% Russia 1% India 4% EU 7% China 8% SA 1% Thailand 1% Colombia 1% Others 5% U.S.A. 38% Brazil 33% Incipient development in traditional sugarcane producers developing countries (e.g Caribbean and Africa) Global Trends: biodiesel Global Biodiesel Production (Million lts) 4,000      3,000 2,000 1,000 0 1990 1993 1996 1999 2002 2005 ~ 7% global biofuel production in 2006 33% annual growth since 2000 >0.2% diesel in transport Rapeseed (~80% in EU). Increasing use of soy and palm oil Developing Countries experimenting with coconut, jatropha, castor oil Top Biodiesel Producers 2005 Spain 2% Austria 2% Czech R. 4% Italy 6% Denmark 2% Poland UK 2% 2% Brazil 2% Others 2% US 8% France 15% Germany 53%  EU produce ~ 90% of biodiesel Developing Countries: early experiences with soya (Argentina), jatropha (Asia/Africa) and coconut (Pacific Islands).  Exports: ~10% of global production – mainly bioethanol  Bioethanol Exports:  Bioethanol Imports: Caribbean countries, Peru, Pakistan, Zimbabwe, Trade Trends  Brazil - 50% of exports, but also from Guatemala and other  US - 31% imports – from Brazil, China, the Caribbean.  EU: mainly intra-EU plus imports from Brazil, Guatemala, Ukraine.  Others - India, China, Japan, Korea  Biodiesel: most trade is in feedstocks  Palm oil (Malaysia/Indonesia) – EU, China/ other Asian  Soya (Brazil, Argentina , US) - EU  Coconut oil: Philippines – Japan Future Trends  Mismatch between global demand and supply: implies opportunities for low-cost producer developing countries, especially tropical countries with low labour and land costs:  EC target of 10% biofuels for 2020 will rely on some 20% of imports  Expected moderate role for biofuels in the transport sector: 4-7% of fuels in transport sector globally by 2030 according to IEA Strategic policy decisions in sustainable biofuel development: some key issues to consider  Trade in biofuels is built on much more than good climate, cheap land and labour. Trade strongly affected by: Trade Issues Country  Tariffs:  Trade agreements:   Higher on bioethanol  EU: GSP+; Cotonou; EBA (101 developing countries) US: Caribbean Basin Initiative/CAFTA; NAFTA, Andean Countries Bound Tariffs undenaturated alcohol US EU Brazil Argentina ~ 46% ~ 63% 20% 20% Thailand India 30% 186% BIODIESEL EU 6.5% US 4.6%  Subsidies: very high (e.g US and EU) – concerns about impacts on  Standards: developing countries‟ competitiveness Trade Issues  Technical  At the WTO: no unique forum to address trade liberalisation  Bioethanol and feedstocks – agricultural goods  Biodiesel - industrial goods  or are biofuels environmental goods? and Sustainability Standards: proliferation of different initiatives (UK, Holland, EC, Biofuels Round Table (RSB)) - Important for effective market development but imply extra burden (economic and institutional capacities)  Trade opportunities not only North-South. Need to explore South-South/ regional trade, capitalising on proximity to large Southern/regional markets  All „traditional‟ environmental issues associated with agro-commodity production: Environmental Issues  But additional complexities:  Expansion of agricultural frontier and related deforestation  Water usage and quality  Soil quality  GMOs  Greenhouse Gases (GHG) savings compared with fossil fuels: great variation depending on feedstocks/technology  First generation: greatest GHG savings for tropical based biofuels with little usage of fossil fuel in the production process and not linked to deforestation (eg sugarcane in Brazil/ maize US ) 2nd generation show the best GHG performance  Impacts of biofuel combustion on air pollution  Social Issues  Positive impacts on rural employment and livelihoods  But drive for economies of scale can create:  Tensions between large scale and small scale production inclusion in the market  Concerns on land concentration and land rights - displacement of small-scale farmers  Labour conditions Food Security Issues  Increased global demand for biofuels: expected price increases and volatility for agricultural commodities  Good news for agricultural producers who are net food producers  Bad news for the poorest (including rural) who are net food consumers  2nd generation and jatropha do not compete directly with food production  Enabling environment for biofuels development: to  Holistic and coordinated policy design; Sustainable Strategy is more than good climate and cheap land and labour: provide the „fundamentals‟ + clear regulation frameworks  Assessment of economic costs –long term policy support; land availability; feedstock choices; environmental, social and food security impacts  Ministry of Agriculture, Energy, Environment, Trade, Private Sector  Proactive policies to include small-producers  Important trade barriers to confront  Strong institutional capacities on standards setting  Infrastructure development to reach end markets Thank you Annie.Dufey@iied.org The UK and biofuels Howard Emmens Biofuels Strategic Policy Branch Are biofuels the good guys .... … or the bad guys? British Prime Minister, 19 November •“I take extremely seriously concerns about the impact of biofuels on deforestation, precious habitats and on food security” British Prime Minister, 19 November •“the UK is working to ensure a European sustainability standard is introduced as soon as possible, and we will not support an increase in biofuels over current levels until an effective UK sales of biofuels • Fuel duty incentives • Some success, but not an ideal support mechanism • RTFO due, over time, to replace fuel duty incentives 300 250 200 150 100 50 0 2002 2003 2004 Year 2005 2006 Bioethanol Biodiesel UK biofuel sales Million litres • to come into effect in April 2008 and will require all suppliers of fossil transport fuels in UK to: • sell a given amount of renewable transport fuel each year (for which they receive certificates); or • purchase certificates from another company; or • pay a “buy-out” price • the level of the RTFO has been set at 2.5% of total fuel sales in 2008, 3.75% in 2009 and 5% in 2010 Renewable Transport Fuel Obligation • the RTFO will have created a demand for 2.5 billion litres of biofuel a year • to be administered by the Renewable Fuels Agency (RFA) Buy out and duty incentive • If a company cannot produce enough certificates at the end of each compliance period, it will have to pay a “buy-out price”, which goes into a buy-out fund • For first two years of the obligation 2008/10, the buy-out price has been set at 15 pence per litre • This is in addition to the 20 pence per litre fuel duty incentive which remains in force for that period • We expect the “emphasis will move from the duty incentive towards the buy-out price as the principal support mechanism for biofuels in future years” Total 35p Duty Incentive 20p Buy out price 15p (2008-2010) Duty Incentive ?p Buy out price ?p Total 30p 2010 onwards Buy-out fund • The buy-out fund (if any) will be recycled at the end of the compliance period to all those who have redeemed certificates, in accordance with the formula: Total fund DIVIDED BY total number of certificates redeemed = recycle value to each certificate • Ensures that those who have redeemed the most certificates get the largest share of the fund, and should therefore act as an additional incentive to supply biofuels How will the RTFO work? • 8 UK refiners and 3-10 importers will become “obligated suppliers” • They must register with the RFA to open an account. • They must provide monthly and annual information on fuel supplies • Electronic registration, with only proof of identity sent by mail. Duty Return • Monthly Monthly electronic submission of volume data Additiona volume Renewable l volume by fuel details type Fuels C&S report Agency Carbon savings Sustainability report Possible future sales Possible biofuels sales with RTFO Sales (in million litres) 3000 2500 2000 1500 1000 500 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Bioethanol Biodiesel New market for biofuels • To meet a 5% target the UK will probably need a mixture of domestic and imported feedstocks • Bioethanol requires feedstocks such as wheat and sugar cane, although sugar beet can also be used. Biodiesel requires vegetable oils - such as palm oil and rapeseed - as a feedstock • RTFO will help to stimulate demand for locally produced biofuels and feedstocks but obligated suppliers will be able to source biofuels in a global market Concerns about biofuels • Recent media coverage of biofuels suggests that: • The carbon savings from biofuels are not worth having • The wider environmental and social impacts outweigh any possible carbon benefits • Biofuels are too expensive: we should reduce carbon emissions in other ways Environmental Assurance Schemes Under the RTFO suppliers claiming certificates will have to report on: • The carbon savings delivered by their renewable transport fuels following a simple calculation methodology we are developing. • The wider sustainability of their renewable transport fuels – including environmental and social aspects • There are currently no internationally agreed standards but we are developing and pressing the EU to take the lead • Reporting will apply equally to UKproduced and imported biofuels Carbon savings and sustainability of biofuels • A variety of factors needs to be taken into account including the energy used • will vary according to how and from what they are produced. • the environmental impacts of crops such as palm oil, soya and sugar can depend on the previous use of the land on which the crops were gown. Moving beyond reporting • Announced on 21 June that UK Government: • from April 2010 aims to reward biofuels under the RTFO according to their carbon savings • from April 2011 aims to reward biofuels under the RTFO only if they meet appropriate sustainability standards • Provided that the above is: • compatible with EU and WTO rules; and • consistent with policy framework developed by the European Commission as part of review of Biofuels Directive After 2010 • Intend the level to rise beyond 5% after 2010 so long as: • Fuel and vehicle technical standards allow • Sustainability of biofuels can be fully addressed • Costs to consumers are acceptable Strong EU dimension • EU‟s Biofuels and Fuel Quality Directives both under review at present • Very ambitious biofuel targets agreed by EU Heads of State in March • Ambitious CO2 reduction targets in Fuel Quality Directive likely to lead to further demand for biofuels 2020 biofuels target • In March 2007 the European Council agreed a binding target of 10% biofuels by energy – equivalent to about 13% by volume - for 2020, so long as: • the required volume of biofuels can be produced sustainably • second generation biofuels (needed to achieve this volume) become commercially available • In addition the UK will want to ensure the costs to consumers are acceptable • In meeting 2020 targets it is likely that the UK along with other Member States will rely on a mixture of imports and domestic feedstocks. And in the UK … • RTFO Order likely to need minor updating during 2008/9, in order to add new fuels to list of eligible fuels. • Substantial revisions to RTFO Order would be needed to move to a carbon-linked scheme Consultation and debate in both Houses of Parliament Website: www.dft.gov.uk/pgr/roads/environment/rtfo Biofuels: Business Opportunities in Argentina London, 11 December 2007 Global Perspectives for Biofuels and Evolution of Energy Policies: Issues for Investors Issues for Investors: Outline     Policy Issues  Global  Less economically developed countries Project Development Issues Opportunities Final considerations 1. Policy Issues  Global  What share of the global market are biofuels capable of sustaining? Security of energy supply and reduction of dependency on energy impacts    Biofuels and climate change Biofuels and other environmental issues 1. Policy Issues (cont’d)  Less Economically Developed Countries  Growth    Diversification of agricultural activity Job creation Environmental issues      Eco-sensitive areas Soil fertility Water availability and quality Pesticide use Dislocation of communities  Biofuel v. food 2. Project Development Issues   Feasibility studies  Global, regional and local trends Regulatory issues  Local legislation  Import and Export  Tax and other state incentives  Due diligence 2. Project Development Issues (cont’d)  Contractual arrangements  Adequate financing  Partnerships  Property arrangements  Purchase and sale agreements  Employment issues  Liability  Environmental  Health and Safety  Directors duties and liabilities Advantages and Disadvantages Advantages Disadvantages Renewable Supply of energy Economic advantages Rural development and reconversion Expansion of agricultural fields Deforestation Decrease in soil fertility Water pollution Food security Land scarcity Pesticide use Additional project development issues      CSR Voluntary regulations Disclosure Green procurement Human rights issues Climate Change Is the success of biofuels dependent on climate change? Final Considerations: Beyond Statistics Biofuels: Business Opportunities in Argentina Global Perspectives for Biofuels and Evolution of Energy Policies: Issues for Investors Angela Delfino (angela.delfino@dl.com) + 44 207 459 5173