Keywords: EU biofuels policy, renewable energy directive, RED, fuel quality directive, FQD
On October 17, 2012, the European Commission adopted a proposal for a new directive amending the two major pieces of EU legislation on biofuels: Directive 2009/28/EC on the promotion of the use of energy from renewable sources (Renewable Energy Directive or "RED") and Directive 98/70/EC relating to the quality of petrol and diesel fuels (Fuel Quality Directive or "FQD"), both in force since 2009.1
Both the RED and the FQD intend to promote the use of biofuels in the EU by establishing a 10 percent share objective for the use of renewable energy in transport by 2020, and 6 percent reduction objective for greenhouse gas (GHG) emissions associated with transporting fuel. Given the absence of carbon-neutral fully marketable alternatives such as electric cars or advanced biofuels, these EU objectives mainly rely on the use of conventional biofuels (oil based biodiesel and sugar and cereal based bioethanol).
The draft legislation intends to send a clear signal to the markets: "future increases in biofuels must come from advanced biofuels." The proposal puts forward a number of controversial measures likely to have a major impact on the existing EU biofuels industry: the introduction of a 5 percent cap by 2020 that limits the use of biofuels from "food crops," and the inclusion of high incentives for producing advanced biofuels. In a surprising move the much anticipated imposition of Indirect Land Use Change (ILUC) factors penalising the most commonly used biofuels in the EU was withdrawn as ILUC factors will now only be relevant for monitoring and reporting requirements.
Debate Over ILUC Factors
The RED establishes sustainability criteria for biofuels: it sets mandatory CO2 savings thresholds for the biofuels to count towards the 2020 10-percent target (and be eligible for state subsidies in the EU) and assigns GHG emissions to different biofuel production pathways. However, the RED only considers the effect of direct land use changes, which are those derived from the actual conversion of agricultural land for producing biofuels. On the contrary, according to a number of scientific reports commissioned by the European Commission, indirect changes happen when carbon rich ecosystems such as forests or grasslands are cleared in order to compensate for agricultural land converted for biofuels production.
The new legislation was meant to introduce different crop-specific ILUC factors—adding specific amounts of GHG emissions to the existing biofuels' carbon footprints established in annex V of the RED and annex IV of the FQD. Now these crop-specific ILUC factors2 should only be reported by fuel suppliers. If the initial crop-specific ILUC provisions remained in the legislation, conventional biodiesel would have been forced out of the market.
The 5 Percent Cap and Other Measures to Promote Advanced Biofuels
The draft legislation would impose a 5 percent mandatory cap on biofuels produced from "food crops" (i.e., "biofuels and bioliquids produced from cereal and other starch rich crops, sugars and oil crops"), which limits the amount of food-based biofuels that can be counted toward the RED target of achieving a 10 percent share of renewable energy in transport by 2020. Given that the current EU biofuels consumption level is close to 5 percent, the cap effectively curbs the long term growth perspectives of conventional biodiesel and bioethanol industries. The measure was included in the proposal after the "fuel versus food" debate resurfaced in the summer of 2012, and it aims to promote advanced or second generation biofuels, which according to the Commission proposal "are currently not commercially available in large quantities."
The Commission intends to further promote second generation biofuels by introducing new incentives for producing biofuels from waste or other sustainable materials. The current legislation already places a premium on biodiesel produced from used cooking oil and animal fats (UCOME and TME), which count double toward the RED target (translated into national blending mandates). The draft revision of the RED proposes that biofuels produced from certain raw materials (algae, mixed municipal waste, industrial waste, straw, animal manure, palm oil mill effluent and empty palm fruit bunches, tall oil pitch, crude glycerine, bagasse, grape marcs and wine lees, nut shells, husks and cobs) will count for four times their energy content.
Consequently, fuel suppliers buying fewer quantities of conventional biofuels will on paper contribute to meeting the 2020 10 percent target, further negatively affecting producers of conventional bioethanol and biodiesel (e.g., if an EU Member State has a 8 percent blending mandate in place, suppliers could meet the national target by only adding a 2 percent of quadruple-counting biodiesel from algae to their blends). A relevant question here is how fast biofuels based on these substances can be produced in accordance with existing quality standards and in enough quantities to supply the EU market.
In addition, the draft legislation proposes that installations that start operations after July 1, 2014 should deliver at least a 60 percent GHG emission savings, while installations that were operative before July 1, 2012 should meet a 35 percent target by 2017, and at least 50 percent by 2018.
Legislative Procedure and Next Steps
As with most EU legislative instruments, the proposed directive has to be approved through the Ordinary Legislative Procedure, involving the EU's two law-making institutions—the European Parliament and the Council of the EU. Targeted lobbying campaigns implemented by concerned industries and environmental NGOs could certainly introduce modifications to key elements of the proposal.
Advocacy campaigns should focus on the European Parliament's Environment Committee and also target the Council of the EU, as the most significant changes to the legislation will probably be introduced by Member States. Major EU countries such as Germany and Spain opposed the Commission's initial plans to introduce ILUC factors, but the 5 percent cap is likely to be equally contested, particularly as it might have a considerable impact on national industries, jobs, long-term investments and the agriculture sector.
Given the controversial nature of the proposal, a formal approval of the draft directive will possibly arrive by the end of 2013, being optimistic. The directive then will have to be transposed into the legal systems of the 27 Member States, a process that takes at least one year. Therefore, its effective applicability cannot be expected before mid-2015.
1 The FQD originally entered into force in 2000 but was last revised in 2009.
2 Three different crop groups are identified: cereals and other starch rich crops, sugars (raw materials for bioethanol production - wheat, corn, sugarcane, and sugarbeet), and oil crops (feedstock for biodiesel production - soybean, palm and rapeseed oil). While cereals and sugar-based bioethanol are given an estimated ILUC emission of 12g and 13g CO2/MJ, respectively, oil-based biodiesel is given 55g CO2/MJ.
Originally published on October 17, 2012
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2012. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.