1. Opportunities on the EU biofuels market: shared benefits for farmers of the EU and developing countries “ Sustainable bioenergy : challenges and opportunities ” International conference, Bonn, 12-13 October 2006 Florence Van Houtte European Commission, DG Development Unit “Sustainable Natural Resources Management”

2. Key aspects of EU policy on biofuels Focus of presentation: ØBiofuels, not energy from biomass (different uses, producers, international markets). Ø1 st generation biofuels (2 nd generation not yet at commercial scale). ØVery dynamic sector, difficulty of updated data. EU policy on renewable energies  EU « biofuels directive » (Dir. 2003/30 and 2003/96), requires Member States to promote biofuels, to reach targets of: Ø2005: biofuels to represent 2% of transport fuels markets Ø2010: 5,75 % Objectives of encourageing biofuels: ØGHG emissions, energy security, pressure on oil prices. ØIndirectly rural employment, diversification of agri outlets. ØDespite economic cost (oil price required for EU biodiesel / bioethanol to break even: €/barrel 75 / 95, at present EU production cost).

3. EU-25 biofuels production Situation 2004 Biofuels volumes: 2,4 M T, i.e. 0,5 M T ethanol (66% cereals, 16% beet, 18% wine), 1,9 M T biodiesel (80% rape, + sunflower, soy, palm). Crops volumes: 1,2 M T cereals, 1 M T beet, 4,1 M T rapeseed (0,4%, 0,8% and 20% of EU production). Land area: 1,4 M ha. CAP supports: set-aside allows non-food crop cultivation; or energy crop premium of € 45/ha (for max. 1,5 M ha); sugar beet for ethanol not included in quotas; distilled wine from intervention stocks; as any crop, eligibility for decoupled payments. Projections 2010 (5,75% target) Biofuels volumes: 24,7 M T, i.e. assuming same share of petrol vs diesel consumption 13 M T ethanol, 11,8 M T biodiesel. Crops volumes: 30 M T cereals, 55 M T beet (2/3 – 1/3), 29 M T rapeseed (12%, 50% and 150% of EU production projected 2010). Land area: 17 M ha (compared to 97 M ha EU arable land)

4. Possibility for domestic supplies 100% domestic supplies could theoretically be feasible. It would lead to: ØIncreased production (including higher yields and use of set-aside land, not “new” arable land). ØShift away from animal feed and other industrial purposes. ØReduction / elimination of exports With positive and negative impacts: Ø+: (very) high prices and new outlets for arable crop farmers; Ø+: farm and factory employment (mostly rural) Ø+: easier compliance with WTO ceilings on subsidised exports; Ø-: excessively high prices for animal farms, and food industry; Ø- : intensification of crop production, environmental impacts; limits to frequency of a crop in the rotation. Ø- : intensification of land use (lower set-aside) Policy limitation: imports of biofuels or their feedstocks into the EU are presently possible and happening  100% domestic supplies would require reviewing the EU trade regime towards a more closed market (compatibility with WTO and development policy commitments?)

5. Possibilities for imports If the share of imports is maximised: ØBioethanol: EU production not cost-competitive with sugar cane based ethanol (2010 cost of € 900 / Toe vs € 680 /Toe cheapest import source). Without import duties, 100% EU ethanol market supplied by imports. ØBiodiesel: without barriers of standards, about 50% of EU biodiesel market could be supplied by imports (likely mainly of feedstocks to EU industry). ØWith present share petrol / diesel, about 70% of EU biofuels market would be supplied by imports.

6. Pros and cons of supplies from the international market Benefits of stimulating (i.a. by EU demand) and relying on an international market: Lower cost to meet EU biofuels targets. Greater reduction of GHG emissions (due to type of feedstock). Downward pressure on oil prices. Opportunities for developing countries agriculture. Certain countries with small domestic markets and relatively low costs will develop only if world market offers possibilities for economies of scale. Stabilisation of biofuels prices, if suppliers of biofuels are diversified. Disadvantages of maximum imported share of EU biofuels market: See advantages of 100% domestic supply. Willingness of EU Member States to develop a policy which has a cost, exclusively to the benefit of imports? Security of supply issue, if suppliers are not diversified.

7. EU policies for a balanced supply of the EU biofuels market Instruments in favour of EU supply of feedstocks: see EU production / CAP. Standard EN14214: biodiesel based mainly on rape oil complies, on soy or palm oil does not. To avoid curtailing imports, the standard should be adapted (without ill effects on engines).

8. EU policies for a balanced supply of the EU biofuels market (2) EU trade policy Biodiesel: 6,5% duty. Not oilseeds. Ethanol: MFN19,2 €/hl undenatured, 10,2 €/hl denatured. GSP normal: no preference. GSP +: duty free. EBA: duty free. Cotonou: duty free. Others. → Review of trade regime to be envisaged (to reach targets), and planned (DDA, Mercosur, GSP post 2008?) Imports (av. 2002-04 stats don’t distinguish by use) Biodiesel: ± no imports. Ethanol (2,5 M hl) MFN: 30% (Brazil, US) GSP: 9% (Ukr, SAf) GSP+: 47% (Pak, Guat, Per, Bol, Ecu) EBA: 2% (DRC) Cotonou: 9% (Swa, Zim) Others: 4% (Egypt, Nor) !! GSP modified in 2006 (before: - 15% normal, and Pakistan eligible to “GSP drugs”)

9. EU policies for a balanced supply of the EU biofuels market (3) Potential contribution of EC development policy: ØDirect: support to Sugar Protocol countries, Energy Facility. ØIndirect: sectoral support for rural development, EU action plan on climate change, etc. ØEIB Investment Facility.

10. Different opportunities and risks of biofuels for different developing countries Benefits: ØAgricultural diversification, rural employment, rural access to energy. ØNational budget: savings on subsidies to oil prices. ØBalance of payments for non-oil exporters.. Risks: ØEnvironment: land conversion (and other + and – impacts of agri) ØAgri-food sector: higher cost of food ( for consumers and industry). ØNational budget: cots tax exmptions and other incentives to biofuels. Conditions: ØBenefits and risks to be analysed; appropriate policies! ØCost-competitive production compared to: 1) oil, if domestic markets, 2) other suppliers, if international markets. ØCost factors: feedstock type and productivity, scale, chain organisation (learning curve).