Implications of Biofuel Support Policies in Europe - A Quantitative Analysis in an Open Economy María Blanco, Shailesh Shrestha, Marcel Adenaeuer and Arno Becker Contact: María Blanco, Shailesh Shrestha, Marcel Adenaeuer and Arno Becker Contact: 16 th ICABR / 126 th EAAE – Ravello June 2012

Outline  EU biofuels support  Biofuels modelling with CAPRI  Scenario setting  Main results  Concluding remarks 2

EU biofuels support EU biofuels support

Blanco et al Biofuels production and use have significantly grown during the last decade in the EU Growth in biofuels production and use mainly driven by public support EU Renewable Energy Directive  Target of 10% renewable energy in total transport energy consumption by 2020  Implementation mechanisms at the MS level: quota obligations and tax exemptions for biofuels 4

EU Biodiesel Production (1000 t) Source: CAPRI database (several raw sources)

EU Ethanol Production (1000 t) Source: CAPRI database (several raw sources)

Blanco et al The development of the biofuel sector raises a number of concerns Contribution to reduce dependence from fossil fuels? Contribution to reduce GHG emissions? Contribution to maintain agricultural income? Food-fuel linkages, in particular competition for land and impacts on food prices 7

Research questions  What are the impacts of the current EU biofuels strategy on global biofuel and agricultural markets?  How these impacts will change if the EU eliminate tariffs for biofuels imports?  How these impacts will change in case of a faster development path of second generation technologies? 8

Biofuels modelling with CAPRI Biofuels modelling with CAPRI

Blanco et al What is CAPRI? Global Spatial Multi-Commodity Model Regional Programming Models 280 regions for EU27+Norway +Western Balkans, detailed representation of farming decisions and CAP measures 77 countries in 40 trade blocks, 60 primary and secondary products, agricultural and trade policy measures Spatial partial equilibrium model of agricultural commodity markets at the global level Two interlinked modules: 10

Blanco et al Biofuels module Global representation of biofuels markets (ethanol and biodiesel) Endogenous supply, demand and trade flows for biofuels For domestic production, two technological pathways (first generation and second generation biofuels) 11

Blanco et al Ethanol markets 12

Blanco et al Biodiesel markets 13

Scenario setting Scenario setting

Blanco et al Scenario setting 15 Baseline 2020 Agricultural market developments (in line with DG- AGRI baseline 2010) EU biofuels support (mandates and tax exemptions) Status quo for agricultural and trade policies Counterfactual scenarios 1. No EU biofuel support (no mandates and no tax exemptions) 2. No EU biofuel tariffs (no EU tariffs for biofuel imports) 3. High second generation (faster development path for 2 nd gen. technologies)

Scenario results Scenario results

Baseline results compared to last year data (EU27) EthanolBiodiesel

Baseline results (MS level) Ethanol (1000 t)Biodiesel (1000 t) SupplyNet TradeDemandSupplyNet TradeDemand European Union European Union European Union Germany France Spain Italy United Kingdom Czech Republic Poland Romania

Biofuels market balances in the EU Baseline (1000 t) Percentage change compared to baseline No biofuel supportNo biofuel tariffsHigh 2nd gen. EthanolBiodieselEthanolBiodieselEthanolBiodieselEthanolBiodiesel Production of which 1st gen of which 2nd gen Consumption of which fuel use Baseline (Euros/ toe) Percentage change compared to baseline No biofuel supportNo biofuel tariffsHigh 2nd gen. EthanolBiodieselEthanolBiodieselEthanolBiodieselEthanolBiodiesel Consumer price

Biofuels market balances in the EU Baseline (1000 t) Percentage change compared to baseline No biofuel supportNo biofuel tariffsHigh 2nd gen. EthanolBiodieselEthanolBiodieselEthanolBiodieselEthanolBiodiesel Imports Exports BaselineNo biofuel supportNo biofuel tariffsHigh 2nd gen. EthanolBiodieselEthanolBiodieselEthanolBiodieselEthanolBiodiesel Energy share (%)

First generation biofuels by feedstock (EU27) Percentage change compared to baseline Baseline (1000 t) No biofuel support No biofuel tariffs High 2nd generation Ethanol from Wheat Barley Rye Oats Maize Other Cereals Sugar Biodiesel from Rape oil Sunflower oil Soy oil Palm oil

Effects on EU crop production Percentage change compared to baseline Baseline (1000 t) No biofuel support No biofuel tariffs High 2nd generation Soft wheat Durum wheat Barley Rye and meslin Oats Grain maize Sugar beet Rape seed Sunflower seed Soya seed

Effects on EU crop producer price Percentage change compared to baseline Baseline (1000 t) No biofuel support No biofuel tariffs High 2nd generation Soft wheat Durum wheat Barley Rye and meslin Oats Grain maize Sugar beet Rape seed Sunflower seed Soya seed

Effects on EU cropland allocation Percentage change compared to baseline Baseline (1000 t) No biofuel support No biofuel tariffs High 2nd generation Soft wheat Durum wheat Barley Rye and meslin Oats Grain maize Sugar beet Rape seed Sunflower seed Soya seed

Regional effects on agricultural income (%change) No EU biofuel supportNo EU biofuel tariffsHigh 2 nd generation

Demand balance (maize) Percentage change compared to baseline Baseline (1000 t) No biofuel support No biofuel tariffs High 2nd generation Total Demand Human Consumption Feed Processing Biofuels processing Other uses

Blanco et al Biofuels trade 27 Percentage change compared to baseline Baseline (1000 t) No biofuel support No biofuel tariffs High 2nd generation Ethanol Ukraine USA Brazil Asian Tigers Asian South East Biodiesel USA Argentina Malaysia and Indonesia Asian South East

Global biofuels production Baseline (1000 t) Percentage change compared to baseline No biofuel supportNo biofuel tariffsHigh 2nd gen. EthanolBiodieselEthanolBiodieselEthanolBiodieselEthanolBiodiesel EU Non-EU Russia Ukraine USA Canada Brazil Argentina India China Malaysia and Ind Asian Tigers Asian South East World

Concluding remarks  Biofuels production and use will remain mainly driven by public support  Strong links of biofuels to agricultural markets  Development of second generation technologies would ease food-fuel links 29

Thanks for your attention!

2020 Quota obligation BIODBIOE BL6.0 DK6.0 DE AT NL FR PT ES EL IT IR FI SE6.0 UK6.4 CZ EE HU LT LV PL SI SK CY MT BG RO EU biofuels support

Conversion rates tonnes/1000 llitres/tonnetoe/tonne Diesel Gasoline Biodiesel Ethanol

Fuel consumption Baseline (1000 t) Percentage change compared to baseline No biofuel supportNo biofuel tariffsHigh 2nd gen. GasolineDieselGasolineDieselGasolineDieselGasolineDiesel Use in the transport sector (1000 t) Energy share in total fuel use (%) Consumer price (Euro/ton) Consumer taxes (Euro/Ton)

Blanco et al Trade blocks in CAPRI Asian Tigers (Hong Kong, Singapore, South Korea) Asian South East (Vietnam, Thailand, Brunei)

Blanco et al Global biofuel production and recent trends 35

Blanco et al Previsiones de futuro

Blanco et al Increase in cereals production driven by biofuels feedstock demand 37 Fuente: Comisión Europea (2011)

Blanco et al Crop prices will stay high 38 Fuente: Comisión Europea (2011)

Blanco et al Production and consumption of biofuels will double in the EU in the next 10 years 39 Fuente: Comisión Europea (2011)

Blanco et al Important role of biofuels imports 40 Fuente: Comisión Europea (2011)

Blanco et al Ethanol: increasing feedstock demand 41 Fuente: Comisión Europea (2011)

Blanco et al Biodiesel: dependence on imports 42 Fuente: Comisión Europea (2011)

Blanco et al US: uso creciente de DDGS en alimentación animal 43 Fuente: Taheripour et al. 2010

Blanco et al UE: uso creciente de tortas de oleaginosas en alimentación animal 44 Fuente: Taheripour et al. 2010

Blanco et al UE: disminución del precio relativo de la torta de colza respecto a otras materias primas 45 Fuente: Taheripour et al. 2010

Blanco et al Tariffs