Opportunities on the EU biofuels market: shared benefits for farmers of the EU and developing countries “ Sustainable bioenergy : challenges and opportunities ” International conference, Bonn, 12-13 October 2006 Florence Van Houtte European Commission, DG Development Unit “Sustainable Natural Resources Management” Key aspects of EU policy on biofuels Focus of presentation: Biofuels, not energy from biomass (different uses, producers, international markets). 1st generation biofuels (2nd generation not yet at commercial scale). Very dynamic sector, difficulty of updated data. EU policy on renewable energies EU « biofuels directive » (Dir. 2003/30 and 2003/96), requires Member States to promote biofuels, to reach targets of: 2005: biofuels to represent 2% of transport fuels markets 2010: 5,75 % Objectives of encourageing biofuels: GHG emissions, energy security, pressure on oil prices. Indirectly rural employment, diversification of agri outlets. Despite economic cost (oil price required for EU biodiesel / bioethanol to break even: €/barrel 75 / 95, at present EU production cost). EU-25 biofuels production Situation 2004 Projections 2010 (5,75% target) Biofuels volumes: 2,4 M T, i.e. 0,5 M T Biofuels volumes: 24,7 M T, i.e. ethanol (66% cereals, 16% beet, 18% assuming same share of petrol vs wine), 1,9 M T biodiesel (80% rape, + diesel consumption 13 M T ethanol, sunflower, soy, palm). 11,8 M T biodiesel. Crops volumes: 1,2 M T cereals, 1 M T Crops volumes: 30 M T cereals, 55 beet, 4,1 M T rapeseed (0,4%, 0,8% and M T beet (2/3 – 1/3), 29 M T 20% of EU production). rapeseed (12%, 50% and 150% of EU production projected 2010). Land area: 1,4 M ha. Land area: 17 M ha (compared to 97 M ha EU arable land) CAP supports: set-aside allows non-food crop cultivation; or energy crop premium of € 45/ha (for max. 1,5 M ha); sugar beet for ethanol not included in quotas; distilled wine from intervention stocks; as any crop, eligibility for decoupled payments. Possibility for domestic supplies 100% domestic supplies could theoretically be feasible. It would lead to: Increased production (including higher yields and use of set-aside land, not “new” arable land). Shift away from animal feed and other industrial purposes. Reduction / elimination of exports With positive and negative impacts: +: (very) high prices and new outlets for arable crop farmers; +: farm and factory employment (mostly rural) +: easier compliance with WTO ceilings on subsidised exports; -: excessively high prices for animal farms, and food industry; - : intensification of crop production, environmental impacts; limits to frequency of a crop in the rotation. - : intensification of land use (lower set-aside) Policy limitation: imports of biofuels or their feedstocks into the EU are presently possible and happening 100% domestic supplies would require reviewing the EU trade regime towards a more closed market (compatibility with WTO and development policy commitments?) Possibilities for imports If the share of imports is maximised: Bioethanol: EU production not cost-competitive with sugar cane based ethanol (2010 cost of € 900 / Toe vs € 680 /Toe cheapest import source). Without import duties, 100% EU ethanol market supplied by imports. Biodiesel: without barriers of standards, about 50% of EU biodiesel market could be supplied by imports (likely mainly of feedstocks to EU industry). With present share petrol / diesel, about 70% of EU biofuels market would be supplied by imports. Pros and cons of supplies from the international market Benefits of stimulating (i.a. by EU Disadvantages of maximum demand) and relying on an imported share of EU biofuels international market: market: Lower cost to meet EU biofuels targets. See advantages of 100% Greater reduction of GHG emissions domestic supply. (due to type of feedstock). Downward pressure on oil prices. Willingness of EU Member States to develop a policy Opportunities for developing countries agriculture. Certain countries with small which has a cost, exclusively domestic markets and relatively low to the benefit of imports? costs will develop only if world market Security of supply issue, if offers possibilities for economies of suppliers are not diversified. scale. Stabilisation of biofuels prices, if suppliers of biofuels are diversified. EU policies for a balanced supply of the EU biofuels market Instruments in favour of EU supply of feedstocks: see EU production / CAP. Standard EN14214: biodiesel based mainly on rape oil complies, on soy or palm oil does not. To avoid curtailing imports, the standard should be adapted (without ill effects on engines). EU policies for a balanced supply of the EU biofuels market (2) EU trade policy Imports (av. 2002-04 stats don’t distinguish by use) Biodiesel: 6,5% duty. Not oilseeds. Biodiesel: ± no imports. Ethanol: Ethanol (2,5 M hl) MFN19,2 €/hl undenatured, 10,2 €/hl MFN: 30% (Brazil, US) denatured. GSP normal: no preference. GSP: 9% (Ukr, SAf) GSP +: duty free. GSP+: 47% (Pak, Guat, Per, Bol, Ecu) EBA: duty free. EBA: 2% (DRC) Cotonou: duty free. Cotonou: 9% (Swa, Zim) Others. Others: 4% (Egypt, Nor) → Review of trade regime to be envisaged (to !! GSP modified in 2006 (before: - reach targets), and planned (DDA, 15% normal, and Pakistan Mercosur, GSP post 2008?) eligible to “GSP drugs”) EU policies for a balanced supply of the EU biofuels market (3) Potential contribution of EC development policy: Direct: support to Sugar Protocol countries, Energy Facility. Indirect: sectoral support for rural development, EU action plan on climate change, etc. EIB Investment Facility. Different opportunities and risks of biofuels for different developing countries Benefits: Agricultural diversification, rural employment, rural access to energy. National budget: savings on subsidies to oil prices. Balance of payments for non-oil exporters.. Risks: Environment: land conversion (and other + and – impacts of agri) Agri-food sector: higher cost of food ( for consumers and industry). National budget: cots tax exmptions and other incentives to biofuels. Conditions: Benefits and risks to be analysed; appropriate policies! Cost-competitive production compared to: 1) oil, if domestic markets, 2) other suppliers, if international markets. Cost factors: feedstock type and productivity, scale, chain organisation (learning curve).