Box 5: Biofuel policies in the European Union

Over the past decade, the production and use of biofuels has increased substantially in the European Union (EU). In 2007, 9 billion litres of biofuel were produced, dominated by biodiesel (6 billion litres). The sector has undergone very rapid growth, with Germany accounting for more than half of EU biodiesel production. The main feedstock used is rapeseed (about 80 percent), with sunflower oil and soybean oil making up most of the rest. The EU industry has been slower to invest in ethanol production, which totalled almost 3 billion litres in 2007. The main ethanol feedstocks are sugar beet and cereals.

EU biofuel legislation consists of three main Directives. The first pillar is Directive 2003/30/EC for promotion of a biofuels market in the EU. To encourage biofuel use, in competition with less costly fossil fuels, the Directive sets a voluntary “reference target” of 2 percent biofuel consumption (on the basis of energy content) by 2005 and 5.75 percent by 31 December 2010. It obliges Member States to set national indicative targets for the share of biofuels, in line with reference percentages of the Directive, although it leaves them free to choose a strategy to achieve these targets.

The second pillar is Directive 2003/96/EC, which allows for the application of tax incentives for biofuels. Taxation not being within the sphere of action of the European Community, each Member State can decide on a level of taxation for fossil fuels and biofuels. However, these tax exemptions are considered as environmental state aid and therefore their implementation by Member States requires authorization from the European Commission in order to avoid undue distortions of competition.

The third pillar of the EU biofuel legislation concerns environmental specifications for fuels indicated in Directive 98/70/EC amended by Directive 2003/17/EC. The Directive contains a 5 percent limit on ethanol blending for environmental reasons. The Commission has proposed an amendment that includes a 10 percent blend for ethanol.

Bioenergy support has also been introduced as part of the Common Agricultural Policy, especially following its reform in 2003. By cutting the link between payments made to farmers and the specific crops they produce, the reform allowed them to take advantage of new market opportunities such as those offered by biofuels. A special aid of €45 per hectare is available for energy crops grown on non- set-aside land (traditional food crop areas). In addition, while farmers cannot cultivate food crops on set-aside land, they can use this land for non-food crops, including biofuels, and are eligible to receive compensatory payments per hectare.

Support to bioenergy comes also from the new EU rural development policy, which includes measures to support renewable energies, such as grants and capital costs for setting up biomass production.

In March 2007, the European Council, based on the Commission’s Communication An energy policy for Europe, endorsed a binding target of a 20 percent share of renewable energies in overall EU energy consumption by 2020, as well as a 10 percent binding minimum target for the share of biofuels in overall EU petrol and diesel consumption for transport by 2020. The latter target is subject to production being sustainable, second-generation biofuels becoming commercially available and the fuel- quality Directive being amended to allow for adequate levels of blending (Council of the European Union, 2007). A proposal for a renewable energy Directive including both these targets and sustainability criteria for biofuels was put forward by the European Commission to the Council and the European Parliament on 23 January 2008.

Sources: based on GBEP, 2007, and information from the Web site of the European Commission.

Source: FAO, The State of Food and Agriculture, Biofuels: Prospects, Risks and Opportunities (2008) , Chapter 3, p.32

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Other Figures & Tables on this publication:

TABLE 1: Biofuel production by country, 2007

TABLE 2: Biofuel yields for different feedstocks and countries

TABLE 3: Hypothetical potential for ethanol from principal cereal and sugar crops

TABLE 4: Voluntary and mandatory bioenergy targets for transport fuels in G8+5 countries

TABLE 5: Applied tariffs on ethanol in selected countries

TABLE 6: Total support estimates for biofuels in selected OECD economies in 2006

TABLE 7: Approximate average and variable rates of support per litre of biofuel in selected OECD economies

TABLE 8: Energy demand by source and sector: reference scenario

TABLE 9: Land requirements for biofuel production

TABLE 10: Water requirements for biofuel crops

TABLE 11: Import bills of total food and major food commodities for 2007 and their percentage increase over 2006

TABLE 12: Net importers of petroleum products and major cereals, ranked by prevalence of undernourishment

TABLE 13: Share of net staple food-seller households among urban, rural and total households

Box 1: Other types of biomass for heat, power and transport

Box 2: Biotechnology applications for biofuels

Box 3: Biofuel policies in Brazil

Box 4: Biofuel policies in the United States of America

Box 5: Biofuel policies in the European Union

Box 6: Main sources of uncertainty for biofuel projections

Box 7: Biofuels and the World Trade Organization

Box 8: Biofuels and preferential trade initiatives

Box 9: The Global Bioenergy Partnership

Box 10: Biofuels and the United Nations Framework Convention on Climate Change

Box 11: Jatropha – a “miracle” crop?

Box 12: Agricultural growth and poverty reduction

Box 13: Cotton in the Sahel

Box 14: Biofuel crops and the land issue in the United Republic of Tanzania

Figure 1: World primary energy demand by source, 2005

Figure 2: Total primary energy demand by source and region, 2005

Figure 3: Trends in consumption of transport biofuels

Figure 4: Biofuels – from feedstock to end use

Figure 5: Uses of biomass for energy

Figure 6: Conversion of agricultural feedstocks into liquid biofuels

Figure 7: Estimated ranges of fossil energy balances of selected fuel types

Figure 8: Support provided at different points in the biofuel supply chain

Figure 9: Biofuel production costs in selected countries, 2004 and 2007

Figure 10: Breakeven prices for crude oil and selected feedstocks in 2005

Figure 11: Breakeven prices for maize and crude oil in the United States of America

Figure 12: Breakeven prices for maize and crude oil with and without subsidies

Figure 13: Maize and crude oil breakeven prices and observed prices, 2003–08

Figure 14: Price relationships between crude oil and other biofuel feedstocks, 2003-08

Figure 15: Food commodity price trends 1971–2007, with projections to 2017

Figure 16: Global ethanol production, trade and prices, with projections to 2017

Figure 17: Major ethanol producers, with projections to 2017

Figure 18: Global biodiesel production, trade and prices, with projections to 2017

Figure 19: Major biodiesel producers, with projections to 2017

Figure 20: Total impact of removing trade-distorting biofuel policies for ethanol, 2013–17 average

Figure 21: Total impact of removing trade-distorting biofuel policies for biodiesel, 2013–17 average

Figure 22: Life-cycle analysis for greenhouse gas balances

Figure 23: Reductions in greenhouse gas emissions of selected biofuels relative to fossil fuels

Figure 24: Potential for cropland expansion

Figure 25: Potential for yield increase for selected biofuel feedstock crops

Figure 26: Potential for irrigated area expansion

Figure 27: Agricultural trade balance of least-developed countries

Figure 28: Distribution of poor net buyers and sellers of staple foods1

Figure 29: Average welfare gain/loss from a 10 percent increase in the price of the main staple, by income (expenditure) quintile for rural and urban households