Europe's Innovation in Advanced Biofuels: Following an Overambitious US Example?
The European Union (EU) has a clear affinity for biodiesel: it accounts for nearly 80% of the EU´s total biofuel production. In fact, the EU is the largest biodiesel market in the world and the third-largest global biofuel market. According to the International Renewable Energy Agency (IRENA), total biodiesel production in 2012 was about 24 billion liters, while total ethanol production came to 84 billion liters in the same year. Nearly half of global biodiesel production came from the European Union.
Europe is growing an importing biodiesel market
Both biodiesel production and consumption have grown in the past decade in the European market. The EU´s biodiesel production has grown tenfold since 2000; Germany is the leading producer and consumer in the region, followed by France. The German market produces a similar amount of biodiesel to the US, even though the latter has increased its production substantially since 2010.
But the EU´s consumption of this type of biofuel outpaced production in the last decade, generating a continuing biodiesel deficit in the region. The deficit has increased in the last couple of years as biodiesel production has stalled and now nearly 30% of EU´s biodiesel is imported (see graph). The mismatch is expected to continue as more diesel vehicles are being demanded in the European continent. According to Royal Dutch Shell, in some EU countries, diesel-powered passenger cars account for more than 50% of new car registrations. Furthermore, the European market has a structural deficit in conventional diesel, although it has a surplus of gasoline; this trend is expected to continue as the share of diesel-based vehicles increases, adding pressure to refining margins. The growing pressure of the need for diesel represents an opportunity to expand biodiesel production.
EU policy on biofuels, adding pressure on imports
Legislation in the European market has been a key driver for biofuel expansion in the continent. Since 2009, all member states of the EU have been subject to the Renewable Energy Directive (RED), which requires member countries to comply with a target of 10% renewable energy in the transport sector by 2020, the majority of which will come from biofuels, predominantly from biodiesel. Each member state may specify different targets or mandates for biofuel blending, although biofuels used in the EU are required to generate a minimum savings of 35% of green house gas (GHG) emissions. This percentage will increase to 50% in 2017 and 60% for 2018. Currently, the policy considers advanced biofuels to count twice for the biofuel mandate.
The RED aims to promote the use of sustainable biofuels while generating a net GHG emissions savings without negative impact on biodiversity and land use. For this purpose, the EU has started a voluntary certification scheme to verify the “sustainability” of biofuels used in the EU. The certification process allows private companies to check that biofuels produced either within the EU or in foreign soil generate a minimum of 35% GHG emission savings throughout the whole production chain and that land use is not changed in order to produce biofuels in a way that could affect biodiversity.
Eurobserver states that in 2011, 29% of EU´s biofuels were certified, and that the proportion of this type of biofuel has increased to 59% in 2012. However, the certification scheme has a potential downside, as it could lead to a shortage of biofuels which are eligible to count towards the quota. South American biofuel production, which meets all the RED criteria, may find easier access to other markets that do not require certification. This could add more pressure to an already increasing import market.
Furthermore, to address indirect land use change (ILUC) and to encourage advanced biofuel market share, the EU Commission proposed on May this year that no more than half of the 10% target should be achieved with conventional biofuels, increasing the demand for advanced biofuels. The European Parliament voted on September 11th to cap at 6% the consumption of first generation biofuels in the region, down from the previous 10%, favoring a switch to advanced biofuels. It is expected that advanced biofuels will contribute at least 2.5% of the current target of 10% renewable energy consumption in transport by 2020.
Advanced Biofuels: big goals but small money
Although commercial production of advanced biofuels only started a few years ago, European interest has been growing due to sustainability concerns regarding the use of first-generation biofuels.
The EU has set funding schemes for development of such fuels through the 7th Framework Programme, the European Industrial Bioenergy Initiative, NER 300, Horizon 2020, Biobased Industries PPP, and the Advanced Biofuel Path Initiative. The largest funding was announced this year for the development of bio-based products under the Bio-based Industries PPP. The total estimated budget is 3.8 billion Euros (approximately 5 billion dollars) and will run from 2014 to 2020; the EU will contribute 1 billion Euros, and the industrial partners will provide 2.8 billion Euros. Additionally, each member state could support biofuels through more exclusive national initiatives. For example, the UK announced 25 million pounds (about 39 million dollars) for British biofuel development.
All of this would be a good start. However, it may not be sufficient to kick off advanced biofuel production at the scale that the EU needs. The aftermath of the financial crisis has impacted R&D funding for biofuels - about 2/3 of this expenditure comes from government spending. Even though the total funding remained flat over the last two years (despite the recession), it has slowed down from previous years, currently representing less than 44% than its peak in 2009 (IEA).
The EU, then, with its latest vote on biofuel policy, faces similar problems to the US’s biofuel policy. On the one hand, it desires more advanced biofuels to be incorporated into the fuel mix, but on the other, it sets ambitious and probably unrealistic targets for their incorporation. The US recipe in 2007 set a one-billion-gallon target for cellulosic biofuels in 6 years. The result after this six-year period was to amend the biofuel policy, reducing substantially the advanced and cellulosic targets, as the production of cellulosic fuels was almost non-existent. In addition, the EU is a predominant biodiesel market, and according to IRENA, the current path for reducing production costs for advanced biodiesel is further along than the one aimed at reducing such costs for cellulosic ethanol.
By setting such ambitious targets for advanced biofuels, the EU will probably derive a similar outcome as the US case, partly because the EU advanced biofuels:
1) Have not been allocated sufficient funds,
2) Have not been given the time to prove their true scale and growing potential, and
3) Are subject to pressure from the EU on an already uncertain technology that has not yet taken off.
In the meantime, the EU´s biofuel (biodiesel) consumption and subsequent imports keep growing and the blend wall—nearly half of the US maximum regulatory blend—is maintained. In addition, the take-up of flex-fuel vehicles does not reach even 0.1% of total European car fleet (only 13,000 flex fuel vehicles).
The combination of a low take-up of flex-fuel vehicles and the low biofuel blend percentages permitted in the EU generate a barrier for biofuel expansion, despite the fact that the European market has a structural deficit in conventional biodiesel.
Nelson Mojarro is an OIES Fellow at the Oxford Institute for Energy Studies, of the University of Oxford. He is a doctoral candidate at the Science and Technology Policy Research Unit (SPRU) of the University of Sussex and has recently collaborated as a researcher with SPRU on a multinational Technological Foresight Project.
He has researched innovation transitions in the energy sector, ...
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