Biofuel Policies Re-examined

A New Proposal Would Limit EU Biofuel Mandates
October 25, 2012
by David Laborde and Sara Gustafson

As temperatures rose and crops withered throughout the US in July and August, the country’s corn ethanol subsidies came under fire. And the US is not alone. The use of food crops, such as maize, soybeans, and sugar beets, as fuel continues to generate heated debate throughout both the developed and the developing world. Proponents tout biofuels as an important renewable energy source, one that can decrease the world’s dependence on fossil fuels, increase farm revenues, and improve the environmental sustainability of the world’s industrial and transportation sectors. Critics decry the use of food crops for fuel when millions worldwide continue to suffer from hunger and food insecurity, and question biofuels’ actual environmental benefits.

In the midst of this debate, the European Commission (EC) on October 17 released a proposal that would make significant changes to the existing European Union biofuel policy under the Renewable Energy Directive (RED). The new proposal stems from a series of studies commissioned by the EC in 2009 and draws largely on IFPRI research suggesting that the unintended consequences of biofuel production (such as the effects of indirect land use changes or ILUC) could in fact reduce the environmental gains to be had by the use of biofuels. Indirect land use change effects refer mainly to the increased carbon emission caused by conversion of forests and other pristine lands to cropland in order to expand biofuel production. When forests and other natural lands are cleared for new farmland, the carbon stored in their soil and accumulated biomass is released, leading to a net increase in greenhouse gas (GHG) emissions.

The RED currently mandates that 10% of the EU’s transportation fuel must come from renewable sources by 2020; it also mandates that only 5.6% of this can come from first-generation biofuels (i.e., biofuels produced from food crops such as maize). The initial IFPRI report released in early 2010, Global Trade and Environmental Impact Study of the EU Biofuels Mandate, is based on IFPRI’s MIRAGE model and suggests that the EU’s original first-generation biofuel mandate of 5.6% was at the upper limit of environmental sustainability. The model’s simulations show that biofuel consumption above 5.6% could rapidly increase GHG emissions and erode the policy’s environmental benefits. A follow-up report, Assessing the Land Use Change Consequences of European Biofuel Policies, was released in 2011 and builds upon the initial findings using updated biofuel modeling techniques. This second report supports the assertion that the current EU biofuel mandate is likely to produce significant ILUC emissions and calls for either a limit on the overall scope of the mandate or an increased GHG savings threshold for all biofuel crops. While these reports and their methodology have been heavily criticized by biofuel producers in the EU, Senior IFPRI Research Fellow David Laborde points out the robustness of the model and highlights the need for further collaboration and development. “Data are always imperfect,” Laborde says. “But they can be improved, thanks to constructive dialogue and data sharing.”

The EC’s new proposal makes extensive use of IFPRI’s reports. Specifically, the proposal would lower the EU’s first-generation biofuel mandate to 5%, as well as institute several other significant policy changes:

  • Raise the minimum greenhouse gas (GHG) savings threshold to 60% for all new biofuel production. This increased minimum is intended to improve the efficiency of biofuel production processes and discourage future investments in production facilities that have low GHG-reduction performance.
  • Include indirect land use changes (ILUC) in the reporting of GHG savings by fuel suppliers and EU member states.
  • Establish incentives for biofuels that produce little or no ILUC emissions. Feedstocks that do not create additional demand for land, including algae, straw and waste, will be targeted for incentives.