Europe’s biofuels industry slips further behind US


Europe risks losing out to the United States in the growing market for advanced biofuels without better regulation and clear policy signals, say leading members of the industry.

“Brazil, China, the US are moving ahead at good speed and Europe is working through a lot of issues”, said Steen Riisgaard, chief executive of Novozymes, a Danish company that produces enzyme catalysts for biofuel production. “In the meantime we of course go where the customers are.”

'Second generation' or 'advanced' biofuels are made from substances with little carbon debt, such as forest and crop residues, wastes and algae. By contrast, first generation biofuels such as biodiesel can emit more carbon dioxide than fossil fuels when land use factors are considered, according to EU research. 

Environmental reports predict that Malaysia's entire tropical peatswamp forests could be destroyed by the end of the decade because of the cultivation of palm oil, which can be used for biodiesel. But Europe's biofuels industry has rallied around a defence of all generations of agrofuel. 

Riisgaard said the first wave of biofuels, particularly corn ethanol, were developed quickly in the US because of an “extremely good regulatory framework”. He said poor policy decisions from the EU executive meant that investment was lagging in an industry that had already created an estimated 600,000 jobs in rural America, according to company figures.

“At this point in time, our customers, the people that should build second generation bioethanol in factories, have been waiting for clear political signals from Europe,” said Riisgaard.

Earlier this year, Novozymes opened the world's largest enzyme plant dedicated to biofuels in Nebraska, worth some €161 million. In August, they also announced a €78 million partnership with US Department of Agriculture and Chemtex, the Italian engineering company, to construct a new advanced biofuels plant in North Carolina.

In Europe, only one major second-generation biofuels plant is being built, a Beta Renewables cellulosic ethanol plant in Crescentino Italy. The biomass company expects it to be finished by the end of 2012.

“In Europe they don’t go beyond the pilot plant”, said Rob Vierhout, the secretary-general of Europe’s bioethanol association ePure. “I don’t know of any producer producing commercially", he told EURACTIV.

Biofuels U-turn

For Vierhout, the European Commission's policy decisions have stunted the industry's growth.

The EU executive initially encouraged investment in first generation biofuels four years ago, only to propose limits on their use, following research into their land use effects.

In October, the Commission proposed a cap of 5% on the amount of crop-based fuels that could be used in the transport sector in 2020. An end to public subsidies after 2020 was also flagged, unless producers could demonstrate “substantial greenhouse gas savings”.

“The USA has a much better system”, Vierhout told EURACTIV, “they have thought it through.”

Riisgaard agreed that policy flip-flops had created an “unstable environment” in Europe, with investors shying away from funding projects without strong government-level assurances.

Asked whether his company had seen any increase in investment since the proposals, he responded: “No, not at all.”

US biofuels growth

While European biofuels production faces regulatory hurdles, production has been growing significantly in the US.

A report last month by the Energy Information Administration said that bioethanol accounted for some 10% of US gasoline consumption last year, up from 1% in 2001. US ethanol production was more than 11 times higher than in the EU last year, according to a report by the Renewables Fuel Association.

The US government scrapped its 30-year-old federal tax credit for ethanol at the start of 2012.

But Washington still helps the industry, for instance, by guaranteeing loans taken out for investment in advanced renewable fuels. “In case things go wrong, the government ensures that the loan taken out will be paid”, Vierhout said. “That is a huge support mechanism, the government vouching for you”.

Further, a Biofuels Interagency Working Group proposes policy ideas for increased investment in advanced biofuels, such as lingo-cellulosic bioethanol and a reduced environmental footprint of crop-based fuels, in particular corn-based ethanol, produced abundantly within the US “corn belt”.

Riisgaard agreed that these decade-long policy measures provided just the sort of long term signals that investors crave.

“In the US they have this increasing mandate for the inclusion of corn-based ethanol fuel and it was stated up front that it would be for the next 15 years”, he said.

Quadruple counting

But Riisgaard was satisfied that the latest proposals from the Commission was at least favouring the development of second generation biofuels.

“The problem as we see it is [that] the policy instrument that they have decided on, this quadruple counting, in our opinion will not work," he said.

The Renewable Energy Directive currently 'double-counts' the contribution of second generation biofuels towards member states renewable energy goals,  and this allows states to give them more support.

The October proposals doubled this again so that such biofuels could be 'quadrupled counted'.  As the EU has mandated member states to produce 10% of their transport fuel from renewable sources by 2020, Brussels believes this will incentivise second generation fuels.

Marlene Holzner, European Commission spokesperson for energy policy, told EURACTIV in emailed comments, that the EU executive did not consider all second generation biofuels to be the same. "Some are more expensive (less developed) and some are more sustainable," she said, adding: "Therefore some are made more attractive by being counted more times towards the 10% target."

Vierhout though, argued that it was problematic because double and quadruple counting is not included in the Fuel Quality Directive, which puts particular emphasis on greenhouse gas emissions.

“I haven’t heard anyone say it’s a great instrument”, Vierhout said, adding that oil companies would not pay more for more sustainable fuels if they could get away with cheaper first generation biofuels.

“We have had double counting now for many years and it has not moved the needle at all,” Riisgaard said.

Asked about the difference between the US and EU policies, Holzner said: "Comparing then between the incentives for 2nd gen biofuels in the US and the one in the EU, they appear to be similar, the main difference being that the US scheme lasts until 2022 instead of 2020, and that the required volumes in the US are larger."

The US's 2007 Energy Independence and Security Act, increased the volume of renewable fuel required to be blended into transportation fuel from 9 billion gallons in 2008 to 36 billion gallons by 2022.

The latest European Commission proposal, which will amend both the Biofuels and Fuel Quality Directives, contains measures aimed at preventing the EU from providing incentives for the continued displacement of food crops for fuel.

These include: A 5% cap on the amount of biofuels in the EU’s 2020 transport mix; An end to public subsidies for biofuels after 2020 unless they can demonstrate “substantial greenhouse gas savings”; A quadrupling of credits for second-generation biofuels, to provide production incentives; A 60% greenhouse-gas-saving threshold that will apply to new biofuels installations from 1 July 2014; A review of policy and scientific evidence on ILUC, which will take place in 2017.

But the EU backtracked on its initial draft plans to introduce mandatory accounting for the indirect greenhouse gas emissions of specific feed-based biofuels under the Fuel Quality Directive.

As a result, first-generation biofuels may still be counted towards meeting the EU’s separate target for a 6% reduction in fuel greenhouse gas emissions, even though leaked EU data corroborate Hedegaard’s assertion that some may indirectly emit more greenhouse gas than fossil fuels.

  • 1 July 2014: New biofuels installations must meet a 60% greenhouse gas saving threshold
  • 1 Dec. 2017: Biofuels installations in operation before 1 July 2014 must meet a greenhouse gas saving threshold of 35%
  • 31 Dec. 2017: The Commission will submit a review of policy and best scientific evidence on ILUC to the European Parliament and Council
  • 1 Jan. 2018: Biofuels installations in operation before 1 July 2014 must meet a greenhouse gas saviong threshold of 50%
  • 1 Jan. 2020: Deadline for 10% of EU's transport fuels to be sourced from renewable energies.
  • 2020: European Commission will not support further subsidies to biofuels unless they can demonstrate "substantial greenhouse gas savings" 

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