An USDA GAIN review outlines the likely evolution of the EU market, production and trade in biofuels. It notes the 10% mandatory target for use of biofuels in transportation by 2010 and 20% target for overall biofuel usage. Along with government tax incentives, direct aid grants and the EU energy-crop premium (€45/ha) this is providing a major stimulus to EU investment in this area. EU policy will provide both a stimulus to the import of feedstuffs for biofuel production and the import of biofuels. In terms of the internal agricultural stimulus the Agriculture Commissioner Mariann Fischer Boel believes that ‘energy production could be a strong card for the future of European agriculture and create around 300,000 new jobs around the EU, mainly in rural areas’.
Imports of biodiesel (80% of the EU biofuel market) are projected to increase from 26,459,000 litres in 2005 to 534,486,000 litres in 2010, while imports of bio-ethanol are projected to rise from 578,340,000 litres in 2006 to 1,159,200,000 litres in 2008.
EU production of biodiesel will be heavily influenced by taxation and other incentive policies pursued by EU member states. The principal feedstuffs for biodiesel are rapeseed oil, soybean oil and sunflower oil; palm oil, recycled cooking oils and animal fats are also being used. Import demand for oils is expected to rise sharply. Bio-ethanol is produced from crops rich in starch and sugar, such as cereals and sugar beets. Currently wheat provides 39% of feedstuff, rye 17% and barley 6%. According to the USDA there continues to be speculation over the possible future use of straw and waste to develop cellulistic ethanol. Overall, ‘it is expected that once biomass to liquid has reached large-scale commercial feasibility, it will replace biodiesel as the most important biofuel in the long run’.
The report notes that ‘import competition remains a very important concern for the EU bio-ethanol industry’, with the industry arguing that ‘cheap imports will make it very difficult for the industry to grow and manage without subsidies’.
In terms of the EU’s biofuels trade regime, biodiesel imports are subject to an ad valorem duty of 6.5%, while bio-ethanol trades under ‘several different tariff codes’. Imports of denatured and undenatured alcohol from developing countries enjoy various tariff preferences, with LDCs and the ACP being most advantaged. The main exporters to the EU however are Brazil, Egypt, Guatemala, Pakistan, Ukraine and the USA. ‘Over the 2002-04 period approximately 70% of imports were traded under preferential conditions. Almost 61% were duty free, while 9% benefited from some type of duty reduction’. There is currently no feedstock deficit for bio-ethanol in the EU, with grain and (potentially increasingly) sugar beet as feedstock, and there is also a growing biogas industry.
The development of biofuels is not only impacting on the arable sector but also on the market for animal feed, with rapeseed meal, a by-product from biodiesel production increasingly replacing soybean meal in cattle- and swine-feed rations. In Holland this has also reduced demand for corn-gluten feed.
At the July international biofuels conference Trade Commissioner Peter Mandelson significantly stressed that ‘Europe should be open to accepting that we will import a large part of our biofuel resources … we should certainly not contemplate favouring EU production of biofuels with a weak carbon performance if we can import cheaper, cleaner biofuels’ Conversely he stressed that the EU would not ‘allow the switch to biofuels to become an environmentally unsustainable stampede in the developing world’.
The impact of EU biofuels policy will have multiple impacts on ACP agriculture. It will impact on prices of cereals, market opportunities for vegetable oil producers the competitiveness of EU pig-meat production, and value-added processing in the sugar chain. These areas of impact will need to be carefully assessed product by product and region by region.
Commissioner Mandelson’s comments suggest that the EU will pursue a nuanced trade policy on biofuels, probably with the use of tariff concessions on biofuel imports being linked to the environmental sustainability of the mode of production of the biofuels to be imported.