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Policy Coherence

Exploring links between EU agricultural policy and world poverty

Biofuels

Over the past several years the changing world energy situation has generated intensive discussion about biofuels, much of it promising a source of environmentally sound energy that would also benefit world farmers. At the same time biofuels production has raised a variety of concerns about its impacts on agricultural land and natural habitats, food prices and its impact on the poor and about the real reductions in CO2 emissions that biofuels provide.Policy coherence for development means that the EU should avoid damaging developing countries with its policies for renewable energies through biofuels and seek to maximise the beneficial effects. .

Biofuels are a wide range of fuels derived from biomass. The term covers solid biomass, liquid biofuels and various biogases. Liquid biofuels for transportation can be produced from a variety of feedstocks, many of which are used in the agricultural food chain. However, it is bioethanol and biodiesel that form the core of renewable transport fuels around the world. The main advantage of these fuels is that they can be used as pure fuels or blended with gasoline and diesel. Brazil has been the world leader of bioethanol production for over 25 years. The EU currently leads the world in regard to biodiesel. Biodiesel represents just under 80% of EU total biofuels production (PDF).

Source: UNEP Assessing Biofuels.

World ethanol production for transport fuel tripled between 2000 and 2007 from 17 billion to more than 52 billion litres, while biodiesel expanded eleven-fold from less than 1 billion to almost 11 billion litres. Altogether biofuels provided 1.8% of the world’s transport fuel. Recent estimates indicate a continued high growth. From 2007 to 2008, the share of ethanol in global gasoline type fuel use was estimated to increase from 3.78% to 5.46%, and the share of biodiesel in global diesel type fuel use from 0.93% to 1.5%. Production is geographically concentrated, with the U.S., Brazil and the EU accounting for 90% of the global supply of biofuels in 2007, (Source: UNEP 2009 (PDF)). Projections suggest a continued high growth rate in production, but this will depend on profitability which for first generation biofuels is fundamentally a function of the relationship between the crude oil price and feedstock (primarily agricultural crop) prices.

European Union policy

The European Union has set clear and ambitious targets for limiting CO2 emissions. The EU Energy and Climate Change Package (CCP) was adopted by the European Council on April 6, 2009. The CCP includes the “20/20/20” mandatory goals for 2020, one of which is a 20 percent share for renewable energy in EU total energy mix. Part of this 20 percent share is a 10 percent minimum target for renewable energy consumed in transport to be achieved by each MS. This was originally intended as a target for biofuels only, but under pressure from the European Parliament concerned about the impact on food prices the target now covers, for example, electric cars. For biofuels to be eligible for financial supports and count towards the target they must be certified and comply with the sustainability criteria that are provided in the Renewable Energy Directive. These sustainability criteria have to be met by all biofuels whether produced within the EU or imported from a third country.

The EU has an interim biofuel target (PDF) to achieve a 5.75% biofuels share of the market for petrol and diesel in transport by 2010. The actual rate will be less than this, around 4%, an increase from 1.65% in 2006.

Although targets are set by the EU, responsibility for implementation and the choice of instruments remains with the Member States. Favoured approaches include tax exemptions and increasingly mandates. The EU’s sustained focus on supply-based targets have been heavily criticised by environmental groups who argue that supply based targets should be abandoned in place of policy that promotes the production of the most cost competitive and environmentally sustainable biofuels.

Biofuels and Developing Countries

Global biofuels policies impact on developing countries both as potential producers and consumers. They offer huge promise, but also pose challenges. The growing potential of biofuels appears to create a substantial opportunity for the world’s farmers. For instance, about 80 developing countries grow and process sugarcane, a high yielding crop that can be used to produce bioethanol. Other energy crops that would be suitable for production include maize, soybeans, rapeseed, palm oil and jatropha. Brazil, China and India are among the biggest producers of biofuels, and many more developing countries are establishing biofuels industries. However, Africa has very little biofuels development to date, except in South Africa.

Biofuels can be instrumental in revitalising land use and livelihoods in rural areas and have the potential to increase both yields and incomes, securing real long term poverty reduction (PDF). However, where competing resource claims exist, the rapid spread of commercial biofuel production can and does result in poorer groups losing access to the land on which they depend. There are also concerns that the cultivation of biofuels in developing countries is triggering several environmental problems including deforestation, land degradation, water usage and water pollution.  This problem is particularly pronounced in tropical countries such as Indonesia and Brazil where huge amounts of rainforests are being converted to produce palm oil.

Biofuels and World Food Prices

The role of biofuel policies in the recent rapid increases in world food prices has been controversial. The rapid increase in demand for and production of biofuels, particularly bioethanol from maize and sugarcane, has had a number of effects on grain supply-and-demand systems. Expanded production of ethanol, from maize in particular, has increased total demand for maize and shifted land away from production for food and feed, stimulating increased prices for maize . Rising maize prices, in turn have affected other grains that compete for land for maize.

This argument was dramatically expressed in 2007 by the UN Special Rapportuer, Jean Ziegler, who called the replacement of arable cropland with biofuels a crime against humanity’. UNEP has estimated that in 2008 around 2.3% of all the world's cropland was used for fuel crops.

Biofuels and Trade Policy

Global trade in biofuels remains small relative to both biofuel demand as well as traditional fossil fuel trade. 90% of world biofuel production is consumed domestically. However, with countries such as Japan, South Korea, the US and the EU unlikely to have the domestic capacity to meet demand (PDF), increased biofuels imports will become a necessity. For instance, the EU assumes that 30% of the supply needed for its 10% target for renewables in transport fuels will be met by imports.

Indonesia and Malaysia are already expanding oil-palm plantations to meet this growing demand. Together they are expected to supply up to 20% of the EU market. Brazil is also expected to be an important beneficiary of EU demand for soy biofuel. Other palm oil producers such as Ecuador and Columbia and traditional soy and coconut oil exporters such as Argentina and the Philippines are also seizing biodiesel trade opportunities.

However, several trade barriers currently distort biofuel trade (PDF) and jeopardise developing countries’ potential to benefit from greater global demand for biofuels:

  • Tariff barriers commonly insulate domestic producers. EU tariffs on ethanol average 60%, far in excess of the 17% average for EU agricultural tariff protection. This compares to 6.5% in Canada, 2.5% in U.S. and 0% in Brazil.
  • Developed countries’ biofuel industry benefits from substantial subsidy support.
  • The classification of biofuels within the multilateral trading system is disputed. At present there is no agreement whether biofuels are industrial or agricultural goods.
  • The proliferation of different technical, environmental and social standards and regulations for biofuels is also causing difficulties.

The challenge will be to set up structures within the international trading system that can facilitate trade in biofuels and support the positive contribution of biofuels to sustainable development. Biofuels have become a issue of negotiation in the Doha Round Negotiations with Brazil pushing hard for biofuels to be considered as environmental goods subject to tariffs cuts or elimination.

Links:

European Commission DG Energy Biofuels web page
Links to EU legislation and reports on monitoring progress towards EU biofuels targets

European Biofuels Technology Platform
An industry forum presenting a useful portal to EU developments in biofuels policy

Resources:

Action Aid, Food, Farmers, Fuel: Balancing Global Grain and Energy Policies with Sustainable Land Use (PDF), 2008
ActionAid believes that it is time to stop the headlong rush to agrofuel production, to assess the impacts to date, and to listen to what farmers and consumers are saying about their needs for food and fuel production

ODI, Biofuels and development: Will the EU help or hinder? (PDF), 2008
Useful briefing paper that presents information, analysis and key policy recommendations on biofuel production in the EU and its effect on development

Oxfam GB, How biofuel policies are deepening poverty and accelerating climate change (PDF), 2008.
Argues that current biofuel policies of rich countries are neither a solution to the climate crisis nor the oil crisis, and instead are contributing to a third: the food crisis. In poor countries, biofuels may offer some genuine development opportunities, but the potential economic, social, and environmental costs are severe, and decision makers should proceed with caution.

German Marshall Fund, European Union Policy on Bioenergy (PDF), 2007
Policy Brief on the EU’s bioenergy policy as it moves forward to achieving its renewable energy and biofuels targets for 2020

ODI , Biofuels, Agriculture and Poverty Reduction, 2007
Briefing paper that examines the potential impacts of biofuel policies on poverty reduction through employment, wider growth multipliers and energy prices

US Dept of Agriculture, The Future of Biofuels: A global perspective (PDF), 2007
A short overview of the main features of the biofuels market


Last updated 25 August 2010 by Policy Coherence (Email). ABIA Disclaimer.