Biofuels: Key Issues for Global Sustainable Production and Trade Annie Dufey IIED Seminar: Biofuels

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Biofuels Key Issues for Global Sustainable
Production and TradeAnnie Dufey
IIEDSeminar Biofuels Business Opportunities
in Argentina London, 11 December 2007
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What are (liquid) biofuels?

• Biofuels produced from biomass for uses such as
  transport, heating, electricity and cooking
• First Generation
• Bioethanol - alcohol produced from starchy crops
  (sugarcane, maize, sugarbeet, cassava, wheat,
  barley, sweet sorghum...)
• Biodiesel - produced from oily crops and trees
  (rapeseed, oil palm, soy, coconut, jatropha) and
  animal fats, waste oil
• 2nd Generation not yet comercially available
• E.g cellulosic bioethanol/ biodiesel based on
  biomass gasification produced from forestry
  products, grass, organic waste

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A policy-driven market

• Setting of ambitious national policies to include
  biofuels within energy portfolio (transport)
• EU 5.75 by 2010 / 10 by 2020
• US 35 billion gallons by 2017
• Also in several developing countries (e.g Latin
  America, Africa and Asia)

Diversification, value addition
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Global Trends bioethanol

• 93 of global biofuel production in 2006
• 20 annual growth since 2000
• 3 petrol market
• 40 each of sugarcane and maize
• Developing countries also experimenting with
  cassava, sweet sorghum

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Incipient development in traditional sugarcane
producers developing countries (e.g Caribbean and
Africa)
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Global Trends biodiesel

• 7 global biofuel production in 2006
• 33 annual growth since 2000
• gt0.2 diesel in transport
• Rapeseed (80 in EU). Increasing use of soy and
  palm oil
• Developing Countries experimenting with coconut,
  jatropha, castor oil

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• EU produce 90 of biodiesel
• Developing Countries early experiences with soya
  (Argentina), jatropha (Asia/Africa) and coconut
  (Pacific Islands).

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Trade Trends

• Exports 10 of global production mainly
  bioethanol
• Bioethanol Exports
• Brazil - 50 of exports, but also from Guatemala
  and other Caribbean countries, Peru, Pakistan,
  Zimbabwe,
• Bioethanol Imports
• US - 31 imports from Brazil, China, the
  Caribbean.
• EU mainly intra-EU plus imports from Brazil,
  Guatemala, Ukraine.
• Others - India, China, Japan, Korea
• Biodiesel most trade is in feedstocks
• Palm oil (Malaysia/Indonesia) EU, China/ other
  Asian
• Soya (Brazil, Argentina , US) - EU
• Coconut oil Philippines Japan

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Future Trends

• Mismatch between global demand and supply
  implies opportunities for low-cost producer
  developing countries, especially tropical
  countries with low labour and land costs
• EC target of 10 biofuels for 2020 will rely on
  some 20 of imports
• Expected moderate role for biofuels in the
  transport sector 4-7 of fuels in transport
  sector globally by 2030 according to IEA

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Strategic policy decisions in sustainable biofuel
development some key issues to consider
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Trade Issues

• Trade in biofuels is built on much more than good
  climate, cheap land and labour. Trade strongly
  affected by

• Tariffs
• Higher on bioethanol
• Trade agreements
• EU GSP Cotonou EBA (101 developing countries)
• US Caribbean Basin Initiative/CAFTA NAFTA,
  Andean Countries

Country

Bound Tariffs
undenaturated alcohol

US

46
EU

63
Brazil

20

Argentina
20

Thailand
30

India

186


BIODIESEL

EU

6.5

US

4.6


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Trade Issues

• Subsidies very high (e.g US and EU) concerns
  about impacts on developing countries
  competitiveness
• Standards
• Technical and Sustainability Standards
  proliferation of different initiatives (UK,
  Holland, EC, Biofuels Round Table (RSB)) -
  Important for effective market development but
  imply extra burden (economic and institutional
  capacities)
• At the WTO no unique forum to address trade
  liberalisation
• Bioethanol and feedstocks agricultural goods
• Biodiesel - industrial goods
• or are biofuels environmental goods?
• Trade opportunities not only North-South. Need to
  explore South-South/ regional trade, capitalising
  on proximity to large Southern/regional markets

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Environmental Issues

• All traditional environmental issues associated
  with agro-commodity production
• Expansion of agricultural frontier and related
  deforestation
• Water usage and quality
• Soil quality
• GMOs
• But additional complexities
• Greenhouse Gases (GHG) savings compared with
  fossil fuels great variation depending on
  feedstocks/technology
• First generation greatest GHG savings for
  tropical based biofuels with little usage of
  fossil fuel in the production process and not
  linked to deforestation (eg sugarcane in Brazil/
  maize US)
• 2nd generation show the best GHG performance
• Impacts of biofuel combustion on air pollution

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Social Issues

• Positive impacts on rural employment and
  livelihoods
• But drive for economies of scale can create
• Tensions between large scale and small scale
  production inclusion in the market
• Concerns on land concentration and land rights -
  displacement of small-scale farmers
• Labour conditions

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Food Security Issues

• Increased global demand for biofuels expected
  price increases and volatility for agricultural
  commodities
• Good news for agricultural producers who are net
  food producers
• Bad news for the poorest (including rural) who
  are net food consumers
• 2nd generation and jatropha do not compete
  directly with food production

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Sustainable Strategy is more than good climate
and cheap land and labour

• Enabling environment for biofuels development to
  provide the fundamentals clear regulation
  frameworks
• Holistic and coordinated policy design
• Assessment of economic costs long term policy
  support land availability feedstock choices
  environmental, social and food security impacts
• Ministry of Agriculture, Energy, Environment,
  Trade, Private Sector
• Proactive policies to include small-producers
• Important trade barriers to confront
• Strong institutional capacities on standards
  setting
• Infrastructure development to reach end markets

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• Thank you
• Annie.Dufey_at_iied.org

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The UK and biofuels

• Howard Emmens
• Biofuels Strategic Policy Branch

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Are biofuels the good guys ....
reduce greenhouse gases
increase security of fuel supply
encourage rural development
support farmers
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or the bad guys?
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British Prime Minister, 19 November

• I take extremely seriously concerns about the
  impact of biofuels on deforestation, precious
  habitats and on food security

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British Prime Minister, 19 November

• the UK is working to ensure a European
  sustainability standard is introduced as soon as
  possible, and we will not support an increase in
  biofuels over current levels until an effective
  standard is in place

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UK sales of biofuels

• Fuel duty incentives
• Some success, but not an ideal support mechanism
• RTFO due, over time, to replace fuel duty
  incentives

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Renewable Transport Fuel Obligation

• to come into effect in April 2008 and will
  require all suppliers of fossil transport fuels
  in UK to
• sell a given amount of renewable transport fuel
  each year (for which they receive certificates)
  or
• purchase certificates from another company or
• pay a buy-out price
• the level of the RTFO has been set at 2.5 of
  total fuel sales in 2008, 3.75 in 2009 and 5 in
  2010
• the RTFO will have created a demand for 2.5
  billion litres of biofuel a year
• to be administered by the Renewable Fuels Agency
  (RFA)

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Buy out and duty incentive

• If a company cannot produce enough certificates
  at the end of each compliance period, it will
  have to pay a buy-out price, which goes into a
  buy-out fund
• For first two years of the obligation 2008/10,
  the buy-out price has been set at 15 pence per
  litre
• This is in addition to the 20 pence per litre
  fuel duty incentive which remains in force for
  that period
• We expect the emphasis will move from the duty
  incentive towards the buy-out price as the
  principal support mechanism for biofuels in
  future years

Duty Incentive 20p
Buy out price 15p
Total 35p (2008-2010)
Buy out price ?p
Duty Incentive ?p
Total 30p 2010 onwards
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Buy-out fund

• The buy-out fund (if any) will be recycled at the
  end of the compliance period to all those who
  have redeemed certificates, in accordance with
  the formula
• Total fund DIVIDED BY total number of
  certificates redeemed recycle value to each
  certificate
• Ensures that those who have redeemed the most
  certificates get the largest share of the fund,
  and should therefore act as an additional
  incentive to supply biofuels

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How will the RTFO work?

• 8 UK refiners and 3-10 importers will become
  obligated suppliers
• They must register with the RFA to open an
  account.
• They must provide monthly and annual information
  on fuel supplies
• Electronic registration, with only proof of
  identity sent by mail.
• Monthly electronic submission of volume data

Duty Return Monthly volume by fuel type
Renewable Fuels Agency
Additional volume details
CS report Carbon savings Sustainability report
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Possible future sales
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New market for biofuels

• To meet a 5 target the UK will probably need a
  mixture of domestic and imported feedstocks
• Bioethanol requires feedstocks such as wheat and
  sugar cane, although sugar beet can also be used.
  Biodiesel requires vegetable oils - such as palm
  oil and rapeseed - as a feedstock
• RTFO will help to stimulate demand for locally
  produced biofuels and feedstocks but obligated
  suppliers will be able to source biofuels in a
  global market

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Concerns about biofuels

• Recent media coverage of biofuels suggests that
• The carbon savings from biofuels are not worth
  having
• The wider environmental and social impacts
  outweigh any possible carbon benefits
• Biofuels are too expensive we should reduce
  carbon emissions in other ways

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Environmental Assurance Schemes

• Under the RTFO suppliers claiming certificates
  will have to report on
• The carbon savings delivered by their renewable
  transport fuels following a simple calculation
  methodology we are developing.
• The wider sustainability of their renewable
  transport fuels including environmental and
  social aspects
• There are currently no internationally agreed
  standards but we are developing and pressing the
  EU to take the lead
• Reporting will apply equally to UK-produced and
  imported biofuels

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Carbon savings and sustainability of biofuels

• A variety of factors needs to be taken into
  account including the energy used
• will vary according to how and from what they are
  produced.
• the environmental impacts of crops such as palm
  oil, soya and sugar can depend on the previous
  use of the land on which the crops were gown.

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Moving beyond reporting

• Announced on 21 June that UK Government
• from April 2010 aims to reward biofuels under the
  RTFO according to their carbon savings
• from April 2011 aims to reward biofuels under the
  RTFO only if they meet appropriate sustainability
  standards
• Provided that the above is
• compatible with EU and WTO rules and
• consistent with policy framework developed by the
  European Commission as part of review of Biofuels
  Directive

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After 2010

• Intend the level to rise beyond 5 after 2010 so
  long as
• Fuel and vehicle technical standards allow
• Sustainability of biofuels can be fully addressed
• Costs to consumers are acceptable

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Strong EU dimension

• EUs Biofuels and Fuel Quality Directives both
  under review at present
• Very ambitious biofuel targets agreed by EU Heads
  of State in March
• Ambitious CO2 reduction targets in Fuel Quality
  Directive likely to lead to further demand for
  biofuels

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2020 biofuels target

• In March 2007 the European Council agreed a
  binding target of 10 biofuels by energy
  equivalent to about 13 by volume - for 2020, so
  long as
•  the required volume of biofuels can be produced
  sustainably 
• second generation biofuels (needed to achieve
  this volume) become commercially available
• In addition the UK will want to ensure the costs
  to consumers are acceptable
• In meeting 2020 targets it is likely that the UK
  along with other Member States will rely on a
  mixture of imports and domestic feedstocks. 

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And in the UK

• RTFO Order likely to need minor updating during
  2008/9, in order to add new fuels to list of
  eligible fuels.
• Substantial revisions to RTFO Order would be
  needed to move to a carbon-linked scheme

Consultation and debate in both Houses of
Parliament
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Website www.dft.gov.uk/pgr/roads/environment/rtfo
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Global Perspectives for Biofuels and Evolution of
Energy Policies Issues for Investors

• Biofuels Business Opportunities in Argentina
• London, 11 December 2007

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Issues for Investors Outline

• Policy Issues
• Global
• Less economically developed countries
• Project Development Issues
• Opportunities
• Final considerations

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1. Policy Issues

• Global
• What share of the global market are biofuels
  capable of sustaining?
• Security of energy supply and reduction of
  dependency on energy impacts
• Biofuels and climate change
• Biofuels and other environmental issues

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1. Policy Issues (contd)

• Less Economically Developed Countries
• Growth
• Diversification of agricultural activity
• Job creation
• Environmental issues
• Eco-sensitive areas
• Soil fertility
• Water availability and quality
• Pesticide use
• Dislocation of communities
• Biofuel v. food

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2. Project Development Issues

• Feasibility studies
• Global, regional and local trends
• Regulatory issues
• Local legislation
• Import and Export
• Tax and other state incentives
• Due diligence

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2. Project Development Issues (contd)

• Contractual arrangements
• Adequate financing
• Partnerships
• Property arrangements
• Purchase and sale agreements
• Employment issues
• Liability
• Environmental
• Health and Safety
• Directors duties and liabilities

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Advantages and Disadvantages
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Additional project development issues

• CSR
• Voluntary regulations
• Disclosure
• Green procurement
• Human rights issues

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Climate Change

• Is the success of biofuels dependent on climate
  change?

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Final Considerations Beyond Statistics
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Global Perspectives for Biofuels and Evolution of
Energy Policies Issues for Investors Angela
Delfino (angela.delfino_at_dl.com) 44 207 459 5173

• Biofuels Business Opportunities in Argentina