The EU renewables target of 10% of transport fuel by 2020 to be met mainly by biofuels has been heavily criticised for its potential impact on diverting land from food to fuel production and thus putting upward pressure on food prices. Another source of criticism is whether it does actually contribute to reducing overall greenhouse gas (GHG) emissions. The Commission sought to deflect this latter criticism by requiring that biofuels which count against the renewables target must show a direct GHG saving of 35% compared to the fossil fuel that they displace. This saving requirement is gradually increased to 50% and 60% for fuels produced by installations that start production after 2017 and 2018, respectively.
However, these GHG reduction requirements do not take into account the possible indirect effects of converting cropland to biofuel production, which will encourage indirect land use change (ILUC) by conversion of pasture or forest to produce the food crops displaced by biofuels. The Commission has beeen asked to examine the question of ILUC and measures to avoid it, and to report on this by the end of this year. Two recent studies illustrate the complexities involved.
In March this year, a team of researchers at the International Food Policy Research Institute produced a report for DG Trade arguing that net GHG emissions would fall as a result of the EU renewables mandate, even when ILUC was taken into account. Yesterday, this conclusion was flatly contradicted by a study prepared by the Institute for European Environmental Policy, which suggested that the mandate would lead to increased emissions equivalent to about 7% of total EU transport emissions in 2007.
The two studies are very different. The IFPRI study is a state of the art attempt using computable general equilibrium modelling to trace through the production and consumption responses on a global level to the EU mandate. The IEEP study uses secondary data to produce a more back-of-the-envelope assessment of the likely consequences of the policy. However, the strength of this study is that it takes the actual plans set out by Member States in their renewable energy action plans and not just hypotethical scenarios to evaluate the ILUC impact.
There are other obvious differences. The IEEP study projects a higher first generation biofuels target than the IFPRI study (8.8% as opposed to 5.6%) based on MS action plans and therefore projects higher total biofuel demand of 26.0 Mtoe in 2020 compared to the IFPRI figure of 17.8 Mtoe (in each case, the difference with the 10% target is made up by second generation biofuels and other sources of renewable energy).
The IEEP also show that MS plan a much higher share of biodiesel in EU consumption than assumed in the IFPRI study (72% compared to 45%). As a result they project a bigger ILUC effect – while the IFPRI study estimates an increase of 0.07-0.08% in global cropland area, the IEEP study calculates a figure of 4-7 million hectares which works out at around 0.3-0.5% of world arable land, between five and six times as large.
Apart from the more ambitious scenario, another important reason for the different indirect land use outcomes is that, in a CGE framework, higher prices encourage intensification of existing land use, so that higher yields could account for around half or more of the additional demand for biofuels (depending on the crop) and thus reduce the ILUC requirements correspondingly by half. This is an important feedback mechanism ignored in the IEEP study.
There are also big differences in the two estimates of the GHG savings from biofuel use. IEEP project savings of 17 Mt CO2 compared to the IFPRI figure 18 Mt CO2 in moving from the 2008 biofuels penetration of 3.3%, but their incremental increase (from 3.3% to 8.8% = 5.5% increase) is more than double the IFPRI one (from 3.3% to 5.6% = 2.3% increase). Their more pessimistic conclusions on savings seem to derive from their methodology of calculating these savings. They don’t examine savings directly from the use of particular feedstocks; instead, they use the minimum savings required to meet the sustainability criterion in the RED, i.e 35% in 2011 rising slowly to 50% by 2017. The IFPRI study assumes that sugarcane-based ethanol will play a bigger role in meeting EU demand, which allows them to factor in a larger direct savings than what the IEEP assume. However, the IEEP study reflects what Member States plan to do and these plans assume much greater reliance on biodiesel than the more carbon-efficient sugarcane.
For these reasons, the IEEP ILUC estimates of GHG emissions are much higher than the IFPRI ones. They estimate the additional GHG emissions associated with ILUC to be between 44 and 53 Mt CO2, compared to the IFPRI figure of 5.3 Mt CO2. This mainly reflects their much higher estimate of ILUC, which is five to six times higher. The remaining difference would probably be eliminated taking into account the recognition in the IFPRI study that marginal emissions go up if biofuels demand increases, so their emissions would increase more than proportionately if they modeled the more ambitious IEEP scenario.
The very different results of these two studies concerning the effect of the EU biofuels mandate on net GHG emissions illustrate the tightrope that the Commission is walking in preparing its own assessment later this year.