Volley of criticism means shaky outlook for EU biofuels

It has been an eventful few weeks for biofuels in Europe. Each week has brought another volley of criticism. Like a punch-drunk boxer, the biofuel industry is still there fighting, but to take the analogy further, a stumbling fighter attracts fewer bets.

It is no wonder that potential investors are looking elsewhere for better prospects, a development that could leave Europe dependent on imported biofuels, removing one of their main advantages. So what has led to this situation?

First we had the publication of the Renewable Energy Strategy and the Gallagher Review into the indirect effects of biofuel production. Both of these were reasonably balanced documents, and while I have a few queries about some of the assumptions made by Gallagher (particularly the different treatment of set-aside and unproductive land), overall they provide a sound framework that will still allow the European industry to move forward.

OPEC claims dismissed

Further mud was flung at biofuels by the oil cartel OPEC, which claimed that 40% of the price of crude oil could be attributed to bioethanol. The main European, Brazilian and North American bioethanol trade associations quickly responded in an open letter which politely suggested that OPEC president Chakib Khelil was talking out of his bottom. “Since you, as head of OPEC, provide no explanation for what in our view constitutes a self-serving and misleading statement that goes counter to any independent analysis of the fuels market today, one can only conclude that OPEC views competition with biofuels as a direct threat,” they wrote.

Next, the Organisation for Economic Co-operation and Development (OECD) published a report on 16 July which concluded that “biofuels are currently highly dependent on public funding to be viable”. The OECD says “US, Canada and the European Union government support for the supply and use of biofuels is expected to rise to around $25bn a year by 2015 from about $11bn in 2006.

‘The reduction of greenhouse gas emissions is a primary reason for current biofuel policies, but the savings are limited. Ethanol from sugar cane – the main feedstock used in Brazil – reduces greenhouse gas emissions by at least 80% compared to fossil fuels. But emission reductions are much smaller from biofuels based on feedstocks used in Europe and North America.’


Tariff cuts proposed

With increasing environmental and financial pressure for Europe to open its biofuel markets, it was to be expected that last week’s WTO Doha Round talks in Geneva would see movement on the subject. The EU proposed tariff cuts on 1.4m tonnes of ethanol imports annually by 2020, worth about $1bn a year. The European industry instantly opposed the suggestion, with Robert Vierhout, president of the European Bioethanol Fuel Association (eBIO) saying: “Brazilian imports would wipe away the entire European production. This is totally unacceptable.”

Perhaps more surprising was the Brazilian reaction to the offer. One report said that Peter Mandelson wrote on his blog, after making the offer: “Surprisingly, given the importance of this question in Brasilia, [Brazilian Foreign Minister Celso] Amorim seemed to dismiss the value of such an offer for Brazil.”

The Brazilian Sugarcane Industry Association (UNICA) also attacked the idea of an import quota. “What we expect now is full integration for ethanol into global trade. Ethanol should not be treated any differently because currently it is not considered a sensitive product in Europe or the United States,” said UNICA president Marcos Sawaya Jank.

A worthy investment?

So, in light of the confused outlook for European biofuel (made even more uncertain by announcements last week that both the German and Irish governments were to cut their plans for mandating biofuels), is it any wonder that UK-based Infinity Bio-Energy has just increased its shareholding in a big Brazilian sugar and ethanol company to 99.5%?

If investment in European biofuel capacity does disappear, farmers will lose a potential market for grain and oilseeds, which will add downward pressure on prices. As always in this area, the relative arguments around greenhouse gas savings, energy benefits and sustainability are complex. But given recent political noises about the importance of agriculture (both domestic and overseas), the way that European governments treat their biofuels industries in the coming months is likely to be telling in terms of their overall attitude to agricultural development.

Richard Crowhurst is Editor of  EnAgri.info