The USDA annual review of the EU27 biofuels sector, published in June 2012, provides a comprehensive review of developments. It sets out:
- the basic policy framework (the EU’s Energy and Climate Change policy package and the Renewable Energy Directive – RED), which has been stimulating demand for biofuels in the EU;
- the structure of the EU biofuels sector and EU feedstock utilisation;
- the EU’s biofuel trade policy;
- developments in the EU biofuel sector in 2011.
In the EU, biodiesel accounts for 70% of biofuel use, with two-thirds of this being produced from rapeseed. In addition to domestically produced rapeseed, the EU biodiesel market provides a market for ‘at least 1.5 million tonnes of vegetable oil’ imports, mostly palm oil, soy bean oil and more recently rapeseed oil. However, according to USDA, ‘in the EU, the years of rapid expansion of biodiesel production capacity seem to be over.’ From 2006 to 2009 ‘production capacity increased 360%’, however in 2010 and 2011 the increase was only 2% and 3% respectively. For 2012 and 2013, capacity is forecast to contract by 0.5% and 0.3% respectively. This is attributed to ‘difficult market conditions’. Capacity utilisation fell from ‘68% in 2007 to a mere 44% in 2009’, where it remains. According to the USDA, ‘EU27 biodiesel consumption seems to have reached a plateau’, with only marginal increases foreseen in the coming years.
While EU bioethanol production capacity was projected to ‘increase from about 2,100 million litres in 2006 to about 8,500 million litres in 2013’, high grain prices in 2007/08 and 2010/11 reduced capacity utilisation. Indeed, between 2007 and 2011 only about 60% of installed capacity was utilised. ‘Feedstock supplies are anticipated to remain tight during [Marketing Year] 2012/13, with negative margins on bioethanol production anticipated, although returns on selling Distillers Dried Grains should result in overall positive margins.’ Competitively priced imports from Brazil have been compounding the difficulties in the sector. Overall, 2011 was a poor year for the EU bioethanol sector, although there are signs of recovery for 2012, as the EU has closed loopholes that allowed blended imports to take place at only one-third of the nominal duty. This, along with rising grain prices, has priced imports out of the EU market, offering new opportunities for domestic EU producers. One early effect is that the £300m Ensus ethanol plant in the UK, Europe's biggest, is reported to have restarted production 15 months after being mothballed – a move blamed on cheap imports of US ethanol.
Currently over half of the feedstock used in EU ethanol production is sugar beet: the use of sugar beet in ethanol production increased by 247% between 2006 and 2010. While a 4% decline in usage occurred in 2011–2012 (as a result of temporary changes in the permitted use of out-of-quota sugar in response to sugar shortages on the EU market), by 2013 a renewed expansion of sugar beet usage is forecast. At present, some 23% of sugar beet production in France and 8.9% of total EU sugar beet production is being used in bioethanol production.
The use of cereals as a feedstock doubled between 2006 and 2010, but with a further increase of 36% projected by 2013. The Ensus plant will use some 100,000 tonnes of wheat a month once full capacity is reached, which is reported to be within 2 months of its reopening. Currently some 3.6% of total EU cereal production is used in bioethanol production. Since EU bioethanol plants are designed as multi-feedstock facilities, relative prices determine the actual use of a particular feedstock.
The EU maintains a range of duties on bioethanol and biodiesel, and LDCs and (interim and full) EPA countries are exempt. Nevertheless, imports from non-LDC/ACP countries are being attracted to the EU market because of insufficient domestic EU production relative to growing regulated demand. According to USDA, however, the EU bioethanol market overall is becoming increasingly isolated from international markets, as a result of its trade policy.
In terms of future EU policy, development reports on the EurActiv.com website have highlighted the pending publication by the EC of a proposal ‘measuring the indirect emissions of biofuels’. This is likely to distinguish between ‘low emitting biofuels such as ethanol and high emitting ones like biodiesel.’ A report pointed out that the introduction of indirect land use changes, in calculating greenhouse gas emission reductions, would probably exclude ‘the majority of Europe’s biodiesel production’ from the attainment of the Renewable Energy Directive (RED) targets.
In addition, a study by German academics published in July 2012 suggested that EU claims on the greenhouse gas emission reduction properties of rapeseed biodiesel production were unfounded, going so far as to suggest that ‘the Brussels data on rapeseed oil’s alleged [greenhouse gas] savings is deliberately over-stated, and “political” rather than “scientific”.’
At the global level, according to the FAO-OECD Agricultural Outlook 2012-2021, up to 2021 ‘ethanol and biodiesel prices are expected to remain supported by high crude oil prices’ and the implementation of policies promoting biofuel usage. The analysis highlights how biofuel policies ‘strongly affect biofuel markets’. Trade in biofuels is expected to grow significantly, driven by differing policies on ‘scoring’ the greenhouse gas emission reduction properties of different types of biofuels using different paths to market. Overall production is projected to expand but at a slower pace than in the past, with biofuel production in developing countries expected to remain below target levels since ‘high prices of agricultural commodities do not encourage their use as biofuel feedstock’.
With Brazil and the US dominating the bioethanol trade, the demand for ethanol created by EU policies has only a marginal impact on ACP exporters. More profitable sugar cane-based residue products can be produced for sale internationally, while local biofuels markets potentially provide better returns. Similarly, other markets for palm oil products are currently more profitable for established ACP palm oil exporters than the EU biofuel market (e.g. in the case of PNG, the food product market for sustainably certified palm oil).
The utilisation of cereals in EU biofuels production has only a marginal impact on the overall EU cereals market, with total utilisation being less than half the projected increase in EU cereals production between 21012 and 2020, and only twice as large as the December 2011 to June 2012 revision in cereals production estimates for 2012. But this could change if more wheat-based plants come on stream and, by affecting world prices for the feedstock, have an impact on ACP cereal importers.
EU biofuels policies on their own have so far had little bearing on global food prices. US policies have had a far greater influence on global food prices, with EU policies adding marginally to these effects. But with cereal supply so tight this year, things could change.
Of far more significance to date for some ACP countries is the impact of EU biofuels policies on the utilisation of sugar beet. While the poor performance of the EU biofuel sector in 2011 will have posed challenges, with nearly 9% of EU sugar beet production now going into bioethanol production, a strong biofuel sector, insulated from international competition, could potentially greatly ease the transition to an EU production-quota-free sugar regime, and to a degree support EU sugar market prices. Whether easing the transition to a production-quota-free EU sugar regime is in the long-term interests of ACP sugar producers is a matter of fierce contention.