Global Renewable Fuels Alliance

GRFA Letter to Members of the European Parliament re. Renewable Energy Directive

Dear Member,

We are writing to you to express our grave concerns with the current review of Europe’s Renewable Energy Directive (RED) and Fuel Quality Directive (FDQ). Renewable Energy mandates have been the primary policy mechanism by which the biofuels industry has gained critical access to the world’s transportation fuel markets. Successful mandates around the world have created a dynamic biofuels industry that now employs over 1.4 million people and generated over $270 billion of economic output in 2010 (Urbanchuck, John. Contribution of Biofuels to The Global Economy: Cardno Entrix, 2012). Today, world ethanol production alone produces over 2 million barrels of biofuels (oil equivalent) per day putting unprecedented downward pressure on oil prices while offsetting over 100 megatons of CO2 emissions each year. This equates to removing over 20 million cars off the road each year ((S&T)2 Consultants Inc). Without effective and properly designed legislated mandates none of these benefits would have been achieved and certainly the oil industry would never have unilaterally forfeited market share to a competing fuel regardless of these inherent benefits. The RED has tremendous potential to further develop the global biofuels industry and generate even greater economic and environmental benefits. However, with the current legislative amendment proposed, the RED and FQD may not meet these important objectives. Moreover, the proposals as written may also threaten recent investments in ethanol production by pushing ethanol out of the marketplace.

Above all, designing the appropriate policy mechanisms to ensure the introduction of renewable fuels content in the gasoline and diesel markets must begin with the premise that the alternative – petroleum based fuels – are by definition unsustainable. It is by this benchmark that we should judge ALL renewable fuels.

The Global Renewable Fuels Alliance (GRFA), its members and supporting associations support the sustainable development of biofuels and have encouraged the development of science-based research that advances the industry and continuously improves the GHG footprint of our fuels. However, we do NOT support imposing criteria on our fuels that are based on erroneous scientific work, unproven theories and the suspect agendas of vested interests.

The RED is a revolutionary piece of legislation that will shape the future biofuels policies of the EU and, to some degree, the world. It will establish the necessary investor confidence that will play a major role in the development of the European biofuel industry. It is also the necessary prerequisite to bring advanced biofuels to full commercialization. Furthermore, this Directive contains an unparalleled and comprehensive list of requirements to guarantee that only biofuels produced in a sustainable manner are allowed in the EU energy mix. However, recent attacks on the RED by vested interests reflected in the ILUC proposal threaten to derail this important policy instrument. These attacks threaten to not only impair the EU biofuels industry but could have global implications for biofuels production. A number of these proposals have no scientific merit, are baseless and in some cases have no relevance to the policy objectives of the Directives.

The proposed amendments to the RED include a cap on biofuels derived from food crops despite the lack of analysis and evidence supporting such a proposal. There has been a lengthy debate and ample research published on the so-called food vs. fuel issue, yet there continues to be a series of myths and anecdotes used by vested interests to undermine the RED by imposing unrealistic limitations on the mandate. At the core of this misinformation is the myth that all crops used for biofuels are diverted from food use. This is completely false. According to a recent publication of the United Nations Food and Agriculture Organization (UN FAO), “Increased agricultural productivity and output has ensured that the global supply of crops available for non-biofuel uses has continued to grow over the long term.” Thus, the advent of biofuels has not reduced the amount of food and feed available to the world’s consumers. Further, only the starch contained in grain crops is processed into ethanol; the remaining proteins, fiber, fat, and other nutrients are concentrated and processed into livestock and poultry feed. In fact, for every tonne of cereals used for ethanol production, on average one-third will re-enter the food chain as high protein animal feed or gluten for food and feed applications. These valuable feed “co-products” have become an important staple in the global animal feed market. In fact the UN FAO confirmed last month in its report Biofuels and the Sustainability Challenge, that “the by-products of biofuel production can be useful sources of food.” In fact, the world is already producing some 40 million tonnes of feed from biofuels production annually. According to a recent FAO book on co-products, “DG (distillers grains) has become the most popular alternative ingredient used in beef, dairy, swine and poultry diets in the United States and in over 50 countries worldwide because of abundant supply, excellent feeding value and low cost relative to maize and soybean meal.”

Related to this so-called food vs. fuel issue is the false claim that biofuels are driving up food prices. It is a fact that less than 3% of global grains are used for global renewable fuels production (World Agricultural Supply and Demand Estimates: United States Department of Agriculture, 2012). According to the World Bank this is NOT enough to alter global food prices. Moreover, it has been shown that global crude oil prices have a direct impact on ALL food prices. It stands to reason that a reduction in our reliance on crude oil through the expansion of renewables will reduce the price pressures on food not the opposite, as claimed by some. The chart below clearly shows the direct link between the UN FAO global food price index and crude oil prices.

Global hunger has also been incorrectly cited as a by-product of biofuels production with no evidence supporting this claim. In fact, according to the UN FAO the world produces twice as much food as we actually consume. The FAO cites trade distortions, lack of infrastructure, weather, corruption and pests as the biggest challenges to eradicating global hunger. There is, however, tremendous evidence from the FAO that investing in biofuels production improves food security in rural economies by creating jobs and boosting incomes. This is particularly the case in developing countries that are desperate for such investments.

Global grain production has in fact kept pace with biofuels production through productivity gains over the past forty years. According to the FAO, global major crop production has more than tripled since 1960, with corn yields more than doubling and wheat yields going up almost 160%. In the 1980s, one farmer produced one tonne of food and one hectare of arable land produced 1.8 tonnes of food on average annually. Today, one farmer produces 1.4 tonnes of food and one hectare of land produces 2.5 tonnes of food (Global Environment Outlook: United Nations Environment Program, 2007). This has come about as a result of both an increase in yields and a reduction in post-harvest losses. In some regions, losses can be as low as 20%. In light of these facts, imposing feedstock restrictions in the RED are unjustified and unnecessary.

A similar situation can be found when analyzing sugar cane production. According to the USDA PSD online database, global sugar production is higher than consumption. Since 2004, production has grown 0.78% per year, while demand grew by only 0.53%. For the 2012/13 harvest, the USDA estimates a global surplus of 8.7 million metric tons of sugar. According to LMC International (Sugar & Sweetener Quarterly Report, November 2012), production will outpace consumption by 9.6 million tons.

It must also be noted that sugar and ethanol production share industrial and logistics costs such as cane transportation, crushing, concentration and juice treatment. There are more synergies between the two production processes, including the co-generation system that allows the mills to export surplus electricity to the grid thanks to the large volumes of cane used for sugar and ethanol production.

The Renewable Energy Directive includes a set of unprecedented sustainability criteria, yet some critics have insisted that the RED include what are known as Indirect Land Use Change criteria (ILUC). The theory of indirect land use change has been promoted by a few NGOs as a science and in many cases a de facto outcome of the development of the biofuels industry. In short, the theory suggests that increased biofuels production in one part of the world will have an impact on land use somewhere else in the world. One of the primary concerns of the proponents of ILUC is the deforestation of the Brazilian rainforest caused by increases in biofuels production in Europe and the United States. The truth tells a very different story. Analysis of satellite imagery by Brazil’s National Institute for Space Research indicates that deforestation rates in the Brazilian Amazon have fallen to their lowest levels since the government began keeping data in 1988. Deforestation rates are down 14% year over year while U.S ethanol production rose more than 20% over the same period. Importantly, most if not all deforestation occurs as a direct result of illegal logging, cattle ranching, and subsistence farming – not U.S. or European ethanol production.

ILUC proposals will also act as a non-tariff trade barrier to some products that meet or exceed sustainability, such as Canadian canola. An indirect effect of canola grown in Canada has been to substantially enhance the sustainability of western Canadian agricultural lands yet this product may be shut out of the EU because of unfounded ILUC proposals.

In short, the theory of ILUC is a tool to predict future impacts on land use change caused by biofuels production. Because this theory is designed to “predict” rather than “measure” impacts it cannot be easily used as a compliance tool given the huge number of variables and assumptions in the predictive modeling. The ILUC model will require further development and transparency on ILUC assessments, assumptions and inputs if they are to be used as tools to predict future land use changes. In short, the model today falls well short of being an effective tool for “predicting” these global impacts if they do exist.

If the EU insists on using this instrument for biofuels it must impose similar requirements across the energy sector so that we can have adequate comparisons between competing fuels. It is worth noting that biofuels are the only fuel that has been subjected to this level of sustainability scrutiny.

To date, there is very little evidence that there will be any significant impact on land use in other parts of the world as a result of the EU Biofuels policy. Including ILUC reporting criteria in the RED and/or FQD is therefore premature and not without risk.

Mandates such as the RED have been created to provide market access for biofuels; however, they serve another critical role. Lenders and investors to the biofuels sector will not invest in a sector that does not have guaranteed market access. Mandates create the conditions for capital to flow to the sector and allow it to expand, create employment and build capacity. Legislation must bare in mind this critical role that investment plays in the building of this industry. Attaching onerous and unjustifiable conditions onto legislation serves as a disincentive to investors and the industry will suffer as a result. In that regard, there is a fine line between adopting justifiable sustainability criteria and imposing criteria that limit the ability of the industry to manage costs, reduce risk and reinvest in the expansion of the industry.

An important objective of the proposed RED is to create the conditions to spur the commercialization of second-generation biofuels (2G). Other jurisdictions have wrestled with this policy dilemma and it is clear that a well designed tax incentive program is likely to be far more effective than providing a bias or double counting towards compliance. This double-counting approach was tried in Canada (Ontario) and has failed to deliver any next generation development since it was introduced in 2005. Given the inherent technology risk and the challenge raising risk capital for 2G projects, it will almost certainly require either mandatory targets or some form of tax mechanism to fully commercialize their projects.

In closing, we believe the Renewable Energy Directive and the Fuel Quality Directive have the potential to generate significant benefits for the EU by generating economic output, reducing GHG emissions and improving energy security for the continent; however, the final Directive(s) must find a balance between the need for a sustainable approach to building the industry and attracting the necessary capital to finance this expansion. We would welcome an opportunity for provide further input into this process and supply you with any information you require to help strike this important balance. Please feel free to contact us at info@globalrfa.org or visit www.globalrfa.org.

Sincerely,


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