1. How Distorting Policies Can Affect Energy Efficiency and Sustainability: the Case of Biogas Production in the Po Valley (Italy) Giulio Mela and Gabriele Canali Centro ricerche economiche sulle filiere suinicole (Crefis) Università Cattolica del Sacro Cuore Mantova – Italy giulio.mela@crefis.it Paper prepared for presentation at the 17th ICABR Conference "Innovation and Policy for the Bioeconomy" Ravello (Italy): June 18-21, 2013

2. Aim of the work Estimating the impact of policies stimulating EE production from renewables energy sources – specifically biogas – in the Po Valley Evaluate the consequences of badly designed and implemented energy policies in Italy Provide possible solutions and recommendations for future policy changes

3. What are we talking about? 1/3 In recent years energy production from renewable sources has been increasingly subsidized in many countries –Was it good or bad? Controversial findings… Biogas, in Italy, has rapidly become one of the most subsidized forms of renewable energy Biogas is produced from anaerobic digestion of organic matter –Landfill materials, energy crops, residues, slurry…

4. What are we talking about? 2/3 Biogas can be used in 4 ways: –Burned directly to produce heat (efficiency 85%) –Used to produce electricity (eff. 35%) –Used to co-generate electricity and heat (eff. 75%) –Upgraded to biomethane Most Italian biogas plants produce only electricity -> incentives are high enough Biomethane still not very developed but technology is now mature

5. What are we talking about? 3/3 In Italy biogas is mainly produced in the agriculture-intensive and densely populated Po Valley Why? –(relative) land availability to produce energy crops –Strong livestock sector –Bigger and more organized farms

6. Where's the Po Valley?

7. The policy framework 1/3 Many countries focused on policies promoting electric energy production, which is not always is the most efficient option Biogas [biofuels] subsidized because: –GHG emissions reduction –Raises farmers' income –Good opportunities for other sectors of the economy –"green washing"???

8. The policy framework 2/3 The EU started promoting renewable EE production with Directive 2001/77/EC –MS had to take "appropriate steps" to encourage a greater consumption of EE from renewables –National targets to accomplish Kyoto protocol Italy implemented the directive in 2003 (most supportive system in Europe) –Green certificates –Consumption mandates increasing over time (7.55% in 2012). –EE from biogas had the highest multiplicative coefficient for green certificates computation –Special tariffs for small producers ( duration 15 years

9. The policy framework 3/3 The EU changed its policies with Directive 2009/28/EC (RED) which sets consumption targets for renewables The RED states that biogas production can yield great advantages in terms of sustainability and rural develop. Italy implemented the RED in 2011 with Legislative decree 28/2011 and then Ministerial Decree July 6 th 2012 New incentives -> into force from January 2013 –All-inclusive tariffs decreasing with plant size –National registry -> ceiling of maximum number of plants to be built –Upper limit for subsidies to be awarded every year (5.8 billion euro) –Subsidies depend on the type of feedstock used and installed power –Subsidies awarded through auctions –Still waiting for measures for biomethane…

10. Data and methodology Data on biogas plants and installed power are from Fabbri et al. (2013) -> No official sources available -> double checking needed In 2012 in Italy there were 994 biogas plants, 744 in the Po Valley Installed power was 756 MW, 75% of which in the Po Valley –Animal slurry 3.2% –Animal slurry + agro-industrial wastes + energy crops 11.8% –Animal slurry + energy crops 38.2% –Animal slurry + agro-industrial wastes 24.4% –Energy crops only 22.4% Conversion coefficients were applied to compute the amount of EE and biogas produced in 2012 Assumptions had to be made on the substrates used…

11. Results 1/3 In 2012, in the Po Valley, almost 17,800 TJ (or 4,9 million MW) of EE from biogas were produced, 8,546 in Lombardy only Biogas needed to produce all the EE generated in 2012 was 2.2 billion m 3 in the Po Valley regions Our estimates indicate that 7.3 million tons of corn silage were used for biogas production in 2012 in Italy, 5.4 in the Po Valley only Corn silage usage was highest in Lombardy (2.6 million tons) Biogas plant typologies that used up most corn silage were those fed with animal slurry and energy crops and those using energy crops only (2.5 million tons each) Average corn silage yield in the Po Valley -> 60 t/ha

12. Results 2/3 In 2012 more than 90,000 ha were cropped with energy crops (corn silage) for biogas production in the Po Valley –43,000 ha in Lombardy –17,000 ha each in Emilia Romagna and Veneto –12,000 ha in Piedmont 11.4% of total corn area, in the Po Valley – was used for biogas production –20.2% in Lombardy –15.5% in Emilia Romagna Exponential growth during the last few years: –In 2011 just 5.8% of corn area in the Po Valley was used for biogas –2.9% in 2010 –0.5% in 2007

13. Corn area for biogas production and its share on total corn area in the Po Valley (Italy). Own elaborations.

14. Results 3/3 What if biomethane were produced instead than electric energy? From biogas produced in Italy, in 2012, it was possible to obtain EE for 23,854 TJ, with an energy efficiency of 35% If that biogas were upgraded into biomethane it would have been possible to inject into the natural gas grid about 59,000 TJ of methane, net of the energy for upgrading and compressing the gas and ceteris paribus. This would yield an efficiency gain of about 150%

15. Conclusions and policy recommendations 1/2 Apparently "good policies" can lead to unwanted consequences It is hard to imagine that the strong increase in biogas production and area cropped with energy crops did not have any effect on agricultural markets… While corn area for biogas has been increasing, total corn area has been declining since 2005 -> CAP reform Parallelism with what has been happening in the US with ethanol –Increased demand –Increased competition for land (high degree of urbanization) –Increasing agricultural commodity prices –Negative repercussions on livestock farming (concentrated in Northern Italy) –Negative repercussions also for quality products of animal origin

16. Evolution of total corn area in Italy 1966-2012 Own elaborations on Istat data.

17. Conclusions and policy recommendations 2/2 The role of policy in the recent price spikes is key -> many factors influenced agricultural prices but the recent surge would not have happened without biofuel policies (de Gorter et al., 2013) The real effectiveness of biofuels in reducing GHG emissions is at least controversial… is it worth to subsidize them? Lack of foresight -> "sustainability trap" New Italian policies move to the right direction but it is not enough… main problems are still there: –Promotion of inefficient forms energy –Bad planning, lack of monitoring –Lack of data Biomethane seems best solution but interest at stake are many…

18. Thank you for your attention! Questions??? giulio.mela@crefis.itgabriele.canali@unicatt.it