EU U-turn spells doom for food-based biofuels boom
LONDON/BRUSSELS (Reuters) - European Union plans to cap the use of food-based biofuels are a major setback for an industry once seen playing a central role in the fight against climate change, but now more often cast as the villain following a series of global food price spikes.
Industry sources and analysts predict the plan could trigger a wave of plant closures across Europe while questioning whether so-called advanced biofuels, often made from waste products, can play the greater role now envisioned by the European Commission.
The European Commission announced a major shift in biofuel policy on Monday, saying it plans to limit crop-based biofuels to 5 percent of transport fuel, after campaigners said existing rules take food out of people's mouths.
Biofuels made from food crops such as grains, sugar and vegetable oils, often called first generation biofuels, had been expected to provide the bulk of a target that 10 percent of all transport fuel should come from renewable sources by 2020.
The balance is now seen provided with a new generation of biofuels derived from waste products, grasses, the inedible parts of plants or a range of other non-food feedstocks including algae.
"It's a big U-turn in EU policy," said Jean-Philippe Puig, Chief, chief executive of French oilseed group Sofiproteol which owns the EU's largest biodiesel producer.
"We have made lots of investment in order to meet the 10 percent target in 2020, including more than 1 billion euros in biodiesel plants in France," he added.
Record high global grain prices have intensified calls for changes in EU and U.S. biofuel policies which have encouraged the use of food crops to make transport fuel.
"They (the changes) will reduce the price pressure on food and at the same time increase the pressure on car manufacturers to offer more fuel-efficient vehicles," said Hubert Weiger, chairman of German environmental protection lobby group BUND.
EU data for 2011 showed that biofuels made from food crops provide about 4.5 percent of EU transport fuel. Most of this is produced within the EU but there are also imports from South and North America as well as South-East Asia.
"I think the problem is we have huge overcapacity in the EU. The bulk of this capacity has been set up in view of this larger (previous) target," said F.O. Licht analyst Claus Keller.
"The lower target also hits biofuel producers in South America and South-East Asia," he added.
The Commission plan will have to be jointly approved by governments and the European Parliament before becoming law, which could see up to two years of lobbying by industry and campaign groups to influence the final outcome.
"The proposals will push an entire industry towards ruin," said a spokesman for German oilseeds industry association UFOP.
The industry was dealt a further setback when Austria suspended the launch of a higher blend of bioethanol in petrol on Monday, just weeks before it was set to take effect on October 1.
"The focus for investors is increasingly shifting to next generation (advanced) biofuels," said Rabobank analyst Justin Sherrard.
"That was happening anyway but this is going to send a clearer message to investors that the opportunity for first generation biofuels is increasingly limited."
Whether they can make a significant contribution to meeting EU renewable transport fuel targets is not yet clear.
"We are not seeing anywhere in the world the commercialization of next generation at the rate which governments and industry supporters had hoped we would see," Rabobank analyst Sherrard said.
"Any move to provide further incentive for those producers has to be a good thing. Whether it is enough, we will watch closely in coming years."
Advanced biofuels plants are mostly small-scale and still in their development stage.
"Maybe we have a couple of large facilities by the end of the decade but definitely not the capacities we have in the conventional biofuel sector," Licht analyst Keller said.
The struggles of the first generation of biofuels producers could also damage prospects for their descendants.
"Who is investing in second and third generation biofuels? Us - we are paying for that. But how can we invest in developing second generation fuels if we are forced to close down first generation production? We need to be realistic," Puig said.
"I am not convinced that the second generation will be ready in time for 2020, it will take a bit more time and will require more investment than for the first generation. Probably it will only be ready between 2020 and 2025."
- Tweet this
- Share this
- Digg this
- UPDATE 3-Tennis-Monte Carlo Masters men's singles quarterfinals results
- Vice-principal of South Korea school in ferry disaster commits suicide |
- Pope Good Friday service underscores plight of the suffering
- Special Report - How the U.S. made its Putin problem worse
- Bodies found trapped inside sunken South Korean ferry - coastguard |