Wearing the cap: A place for food-based ethanol in the RED?

In Europe, a long-running process of revising the EU’s biofuel policy is, after several years of discussion, analysis and negotiation, gradually drawing to a close. It is widely expected that within a few months the European Parliament, European Council and European Commission will finally reach agreement on amendments to Europe’s Renewable Energy and Fuel Quality Directives (RED and FQD) that will adjust the policy to recognize the concerns raised, especially since 2008, about indirect land use change (ILUC) and competition of food with fuel (our briefing on original Commission proposal is available here, the Council position is here). The revising directive will have three main elements designed to reduce the risk of negative externalities and poor environmental performance from EU biofuels: capping the use of food- (or land-) based biofuels towards the renewable energy in transport target of the RED; introducing some form of sub-target for a defined set of biofuels expected to have better environmental and social performance; and introducing reporting (or accounting) of ILUC emissions.

In the past, we have written extensively on the subject of ILUC, including our Guide for the perplexed which provides a detailed overview of the topic, review of the modeling undertaken by the International Food Policy Research Institute (IFPRI), and a paper in which we identify the potential emissions benefits from introducing ILUC factors in EU policy. This last paper shows that the introduction of ILUC factors in regulation would have been expected to deliver considerable emissions reduction from European biofuel policy, and that these savings would have been achieved by replacing biodiesel from unused vegetable oil with ethanol from sugars and grains. These benefits are calculated based on the results from IFPRI, which show a clear difference between the ILUC emissions associated with vegetable oil feedstocks and the ILUC emissions associated with ethanol feedstocks. Ethanol feedstocks are consistently predicted to have lower associated ILUC emissions, and this hierarchy is repeated in modeling in the U.S.

ILUC factors based on the results from IFPRI would have provided a clear market push away from vegetable oil biodiesel and towards ethanol, but it is generally anticipated that in the EU’s final compromise on the ILUC proposal ILUC factors may be included for reporting, but will not have any weight in accounting. This raises the question of which biofuels are likely to be used to meet the capped part of the renewable energy in transport target? Will it be ethanol from wheat, sugarbeets and so forth, expected to have a better overall emissions profile and to deliver carbon savings? Or will it be biodiesel from food oils like palm and rapeseed, which we do not expect to deliver any carbon savings compared to fossil diesel? The biodiesel industry in Europe already has considerable excess capacity, and may be well positioned to increase production to fill a 6% or 7% allowance for food-based biofuels under the RED. It is difficult to predict whether European first generation ethanol production will be able to compete with first generation biodiesel for market access, as this will be heavily dependent on feedstock prices, blend limitations etc. However, without ILUC factors, there is a great risk that the market will decide in favor of the fuel with the highest ILUC emissions (biodiesel) rather than the fuel we believe has lower ILUC emissions (ethanol).

Europe is a dieselified fuel market, and ethanol as a petrol additive will not be able to fully replace biodiesel as a way to meet the European targets. However, if Member State policy is able to simultaneously maximize the contribution of first generation ethanol and biodiesel from used cooking oil, that should minimize the ILUC emissions and maximize the carbon savings that can be delivered by 2020. Provided it would be compatible with the vehicle fleet and fuelling infrastructure, a specific mandate for the fraction of ethanol in petrol could be one way to deliver that outcome – a 6.5% target by energy has been suggested. Another potential option to guarantee that ethanol will be part of the mix could be to introduce a split mandate between diesel and petrol, with a view to guaranteeing the place of ethanol in the mix. If the decision between first generation ethanol and biodiesel is left entirely to the market, the most environmentally sustainable outcomes cannot be guaranteed.

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