IISD Research finds EU Biofuels Industry receives Billions of Euros in Government Support, but Sustainable Development Benefits are Small

European taxpayers and consumers spent between 9.3 and 10.7 billion euros subsidizing biofuels in 2011 with relatively small gains for the environment and the economy, according to research issued by the International Institute for Sustainable Development.

The European Union and its member states provide financial support to the biofuels industry with the intention of reducing carbon emissions, improving rural incomes and strengthening energy security. The support is mainly provided by setting mandates for consumption (which guarantees a market for producers, and raises prices for consumers) and exempting the industry from excise taxes.

A new report by IISD’s Global Subsidies Initiative (GSI) — an independent not-for profit research group — assesses the costs and benefits of EU biofuel subsidies in reaching their policy objectives.

Jobs and the economy

The government support granted to biofuels in the EU is striking when compared with the size of the biofuels industry and the number of jobs it creates. The 9.3 to 10.7 billion euros provided in 2011 is roughly 60 per cent of the entire turnover of the European biofuels sector, which was 13 to 16 billion euros in the same year. It also far outweighs the 6.5 billion euros the private sector has invested in biofuel production facilities from 2004 to the present.

There are widely varying estimates of the number of jobs created by the biofuels industry. Job data and the methods used to calculate jobs were generally found to be weak. Depending on the method used, figures range from 3,630 at biofuel production facilities to 121,911 across multiple sectors.

GSI looked at the location of those jobs and found only 31 per cent of jobs from ethanol and 35 per cent for biodiesel are located in economically undeveloped regions (as classified by the European Union), based on the upper end of the estimated range of 121,911 jobs. If the EU’s objectives are to create employment in underdeveloped areas, it should be noted that is the wealthier parts of Europe that receive the majority of jobs.

Owners of farmland in the EU benefit from higher commodity prices that result from the EU’s biofuel consumption mandate, but foreign suppliers account for an ever-increasing share of the EU biofuel and feedstock markets. In particular, almost half the biodiesel consumed in the EU is either imported or produced from foreign feedstock, including palm oil.

Climate change

The small contribution that biofuels make to tackling climate change also throws EU support policies into question. Biodiesel emits more greenhouse gases than its fossil-fuel-based equivalent when taking indirect land-use change into account (the carbon emissions that result from clearing land to produce biofuel feedstock).

Ethanol results in some emissions savings, but at a high price. Each tonne of avoided CO2 emissions costs between 432 and 493 euros — more than a hundred times the current price of a tonne of CO2 emissions in the EU’s Emissions Trading System.

“In many cases the EU is actually doing more environmental harm than good by subsidizing biofuels. And where there is a reduction in carbon emissions, it’s very far from being cost-effective,” said Mark Halle, international vice-president of IISD.

Energy security

Biofuels make a small contribution to Europe’s energy security. In 2011, the EU produced 3.7 million tonnes of ethanol and 9.4 million tonnes of biodiesel. Together biofuels and biodiesel account for 4-5 per cent of the demand for motor fuels. The EU’s current biofuel production effectively replaces the output of two or three large fossil-fuel refineries.

Better alternatives

“It is important to emphasise that there are viable alternatives to biofuels,” said Chris Charles, GSI project manager. “For example, the EU’s proposed tightening of the current emission standard for passenger vehicles is a far more effective way to reduce CO2, and at a far lower price to EU consumers and taxpayers. A 27 per cent tightening of emissions standards would cost 133 euros per tonne of CO2 avoided, creates additional jobs in the EU, cuts fossil fuel costs and reduces oil imports.”

Policy recommendations

Last October, the European Commission proposed to limit the use of food-based biofuels for transport. Under the Commission’s plan, biofuels derived from food-based groups would contribute no more than 5 per cent of the renewable energy used for transport by 2020. Overall, the EU is seeking to meet 10 per cent of its transport fuel needs from renewable energy by the same year.

If accepted, the Commission’s proposal would significantly limit the financial burden carried by the public, according to GSI’s research. The EU public would save between 9.3 and 10.7 billion euros per year by 2020 if the level of conventional biofuel consumption remained at 5 per cent of energy in transport, rather than increasing to meet the 10 per cent target.

Given the small contribution that biofuels are making to the environment and economy — and the negative impact they can have on land use and food prices — the GSI recommends EU governments go even further. The EU should begin dismantling the rigid biofuel consumption mandates, while national governments should focus on reforming policies that support consumption or production of biofuels that compete with food or have negative impacts on the environment.

IISD contributes to sustainable development by advancing policy recommendations on international trade and investment, economic policy, climate change and energy, natural and social capital, and the enabling role of communication technologies in these areas.

Source: IISD

For more information on: IISD