Free and fair trade that helps boost economic growth and create jobs is a concept most people support, at least in theory. But trade policy is about more than just open markets; it should also support – rather than work against – a government’s overall objectives, writes Emmanuel Desplechin.
Emmanuel Desplechin is the Secretary General of ePURE, the European renewable ethanol association.
On that score, a pending mega-deal between the EU and the South American bloc known as Mercosur doesn’t quite live up to its promise. By agreeing to open its markets to Brazilian ethanol, the EU will contradict its own efforts to increase renewable energy sources in transport, kill incentives to invest in new technology, and make life even tougher for Europe’s already struggling farmers.
After more than a decade of slow-going talks, the EU and the Mercosur nations are suddenly in a hurry to finish, wrapping up the largest trade deal ever negotiated by the EU perhaps even by the end of this year. But Brazil has made the deal conditional on getting access to the EU market for its sugar cane and corn-based ethanol.
It would be a strange moment for Brussels to make such a move, considering it is at the same time pushing to phase out crop-based biofuels – including both Brazilian ethanol and renewable EU ethanol produced from European feedstock.
Which raises the obvious question: Why would the EU want to shrink the market for a fuel that helps it decarbonize its transport sector and reduce engine pollutants in today’s vehicle fleet, and then offer what’s left of that market to Brazilian producers and sugar cane farmers?
Europe’s fossil-based chemical industry is not helping matters. It is pushing for duty-free access to imported raw materials, including ethanol – and making the downright false claim that European ethanol producers cannot meet their demand.
In any case, the European Commission is now not only considering handing a huge chunk of the EU fuel ethanol market to Brazil but also throwing in the entire EU ethanol market for biochemicals.
Those surprising and confusing right- and left-hook punches from the European Commission are merely the latest blows against the EU ethanol sector. Constant policy changes on biofuels have created a dismal investment climate and deteriorating market forecasts for the industry.
These punches also hit European farmers, who are getting pummeled from all sides. Currently, ethanol production in Europe is an important source of income for Europe’s farmers, generating more than €2.1 billion in revenues per year, plus significant jobs and much-needed development in rural areas. That is all at risk if the EU opens up its market to Brazilian ethanol.
In contrast to Brussels, Brasilia has been remarkably tenacious about protecting its own market – and supporting its own farmers and ethanol industry. Even as it pushes to open the European market for its ethanol and other products, Brazil last month imposed a 20% tax on ethanol imports.
Only a relatively small volume representing just 2% of the total Brazilian ethanol market can continue to be imported duty-free. Meanwhile, the EU already allows 13% of its market to be imported duty-free, and any additional concession to Mercosur would come on top of that.
Brazilian biofuel and trade policies should be an inspiration to EU legislators. Brazil has set high ambitions for renewables in transport and prioritized ethanol over gasoline.
But unfortunately the EU, with its serial backing-and-forthing on biofuels policy, has not created a similarly friendly environment for its own industry. It isn’t difficult to see which side will be better positioned to benefit from an EU-Mercosur agreement.
The damage from such a trade deal will also have a knock-on effect on European innovation. With its Renewable Energy Directive recast proposal (RED II), the Commission wants to promote the roll-out of advanced biofuels from waste and residues post-2020, including cellulosic ethanol.
But meeting the proposal’s ambitious targets for advanced biofuels will require tens of billions of euros of new investments.
Unfortunately, the EU-Mercosur deal would create another disincentive for investors, already reeling from the long history of policy uncertainty that has hindered the development of the EU ethanol industry.
Where would you build your new advanced ethanol plant: in a region with a stable biofuels policy that enjoys duty-free access to the EU? Or in the EU itself, which has a notoriously uncertain biofuels policy environment and no competitively available export markets as an alternative outlet?
Renewable ethanol is a better deal for Europe if produced domestically. Production in the EU benefits European farmers, who have a market for their feedstocks, and it also results in millions of tons of high-protein, GMO-free animal feed coproducts each year – reducing the need to import soymeal from Latin America.
That’s why the EU needs a balanced approach in trade negotiations with Mercosur. Billions of euros in investments and tens of thousands of related jobs are at stake.
Instead of handing over whatever remains of Europe’s ethanol market to Brazil, EU policymakers should insist on a renewable energy policy that fosters homegrown technology, helps decarbonize today’s vehicle fleet, and boosts European food security. That would be a much sweeter deal from which all sides would benefit.