1.2 EU Biofuel Policy Scenario

In the European context, two political decisions have had a fundamental role in the biofuels expansion: the Directive 2003/30/EC and Directive 2009/28/EC (RED). The objectives of RED policy in 2009 included the following: increasing farm income, improving environmental quality, and increasing national energy security.

A large variety of biofuel support policies are in place in EU member states, rang­ing from command and control instruments such as standards and shares, economic and fiscal measures, such as tax exemptions, to information diffusion. This implies that market demand is created by policies, as the production costs of biofuels lie above those of fossil fuels. This can be done through basically two instruments: sub­sidization or prescription of a mandatory production. Under the first scheme, biofuels are subsidized in order to reduce the price level to that of fossil fuels (or below). The second approach consists of prescribing a specific quantity of biofuels to be supplied by fuel suppliers on an obligatory basis (blending or use target mandates).[9]

The first option is implemented by the following: (a) tax reduction scheme, which has proven successful although it has caused important revenue losses for the government and (b) support to the cultivation of agricultural feedstock production by the Common Agricultural Policy (CAP). Unfortunately, in 2011, both of measure budgetary support were deleted. The second option (use target mandates) provides that fuel suppliers are obliged to achieve a certain biofuel share in their total sales. Currently, the latter measure is working.

The European Union climate and energy package from 2008 nullifies or updates much of the previous legislation. Its implementation will have a profound impact on how biofuels are used and the level of market penetration achieved in the future. The package aimed achieving the 20-20-20’s objectives: 20 % reduction in emissions, 20 % renewable energies, and 20 % improvement in energy efficiency by 2020.

Within the package, the Renewables Directive (RED) has arguably the high­est significance with regard to biofuels. The Directive deals with biofuels in sev­eral ways, of which the most noteworthy is the mandatory target which states that 10 % of final energy consumption in transport should be met by renewable energy by 2020. Another important aspect of the Directive is the mandatory sus­tainability criteria to which all biofuels are subject. This aspect, in particular, has received high publicity, and its detailing in the Directive has left serious questions open regarding indirect land-use change and potential clashes with trading laws (Amezaga et al. 2010; European Federation for Transport and Environment 2009).

Regarding the sustainability criteria, the RED ensures that the production of raw materials for biofuels does not lead to losses of high carbon stock land such as wetland, forested areas, and peatland; and high land biodiversity such as primary forest and other protected areas including grassland. EU production shall, in addi­tion, comply with certain agricultural and environmental requirements. In particu­lar, biofuels are required to ensure a saving of greenhouse gas emission of at least 35 % when compared to the replaced fossil fuel. This minimum saving would be increased by 50 % in 2017 and by 60 % in 2018 for new installations. The emis­sions shall be calculated over the entire life cycle of the biofuels and include, if any, carbon losses from conversion of land for biofuel crop production.

Currently, similar sustainability requirements were set in the Fuel Quality Directive 2009/30/EC on the specification of petrol, diesel, and gas oil, which pro­vided also a 6 % reduction in greenhouse gas (GHG) emissions from road trans­portation fuels by the blending with biofuels.

Only sustainable biofuels, domestically produced or imported, will be eligible to be counted against the target and for any other public support.

In June 2010, the European Commission announced a set of guidelines explain­ing how the Renewable Energy Directive Verification, on compliance with the sustainability criteria for biofuels and bioliquids, should be implemented (COM (2010)160/01; COM (2010) 160/02; and Decision 2010/335).

In addition, the European Commission was asked to come forward with propos­als by the end of 2010 to limit indirect land-use change. The RED criteria, in fact, exclude some important GHG emissions such as the indirect effects, for example, on land use. For this reason, on October 17, 2012, the Commission published a proposal of directive issued as COM (2012) 595 aiming at limiting global land conversion for biofuel production (include indirect land-use change, ILUC) and to raise the climate benefits of biofuels used in the EU.

The proposal (named ILUC proposal) should amend both the Renewable Energy Directive (2009/28/EC) and the Fuel Quality Directive (98/70/EC). With these new measures, the Commission would limit the use of food-based biofuels and include ILUC2 emissions when assessing the greenhouse gas effect of biofu­els. The use of first generation of biofuels to meet the 10 % renewable energy tar­get of the Renewable Energy Directive will be limited to 5 %. The intention of the proposal is to introduce three ILUC emission factors (for cereals 12 g CO2 eq/MJ, sugars 13 g, and oil crops 55 g). The high ILUC factor especially for oil crops could disqualify most biodiesel made from rapeseed, soybeans, as well as palm oil (first-generation biofuels).

The sustainability criteria proposed by the EU, which aim to combat the envi­ronmental problem, have been subject to widespread criticism and extensive dis­cussion. Social criteria and indirect land-use change are hot topics, both of which are not dealt with in the Directive and face similar difficulties (Amezaga et al. 2010). Both are recognized struggles but how to quantify their effects and incorpo­rate them into policy remains a serious issue. For this reason, the proposal ILUC, nowadays, is largely called into question by European stakeholders.