BRUSSELS – 4 December – An IISD-led seminar, A Global Perspective on Biofuel Subsidies Reform in the EU, gathered policy-makers and stakeholders from business and civil society at the European Parliament, with co-hosts GLOBE EU and Gerben-Jan Gerbrandy, MEP. The event took place at a time of intense policy debate around the European Commission’s recent proposal to limit incentives for biofuels in transport.

The proposed changes have come about because EU biofuel policy – in particular, the subsidies that have driven increasing biofuel production – have come under intense criticism for their negative impacts on the environment and food security, not just in the EU but internationally. The Commission has proposed that food-based biofuels should not be incentivized to contribute more than 5 per cent of the renewable energy used for transport by 2020. This is part of a wider goal to source 10 per cent of transport fuels from renewable energy by the same year. It is now up to the European Parliament and the European Council to decide how to further develop and adopt relevant legislation.

A broad range of perspectives were aired during the seminar.

Sirpa Pietikäinen, MEP and Chair of GLOBE EU, a cross-party group of European Parliament legislators, stressed that European policy-makers need to develop a broader stakeholder dialogue. She also emphasized the need to take into consideration the performance of existing biofuel policies against their stated objectives and their possible unintended consequences, noting that different biofuels perform differently in this respect.

Gerben-Jan Gerbrandy, MEP, Vice-Chair of Committee on the Environment, Public Health and Food Safety of the European Parliament, agreed but argued that such rational decision-making is difficult because of the political economy of biofuel policies. In this sense, biofuel subsidy reform is not different from the phase-out of other subsidies – a “political landmine”, in the words of Arif Havas Oegroseno, Ambassador of the Republic of Indonesia to the EU.

Some of the political constituencies, especially the influential agricultural sector, advocated for the preservation of the status quo. Raffaello Garofalo, Secretary General of the European Biodiesel Board, stressed the positive impact of biofuel market developments on farmers’ incomes and diversification from imported fossil-fuels in Europe. In his presentation, as well as interventions from biofuel industry representatives from the floor, biofuels were credited with balancing some of the requirements of the EU agricultural policies – for instance, as an option preferable to destroying surplus agricultural production or leaving farmland idle. In this respect, biofuel subsidies help to cushion the impacts of the reform of EU Common Agricultural Policy.

Ronald Steenblik, Senior Trade Analyst of OECD, speaking at the event in his personal capacity, argued that biofuels should not be perceived as running counter to the interests of the powerful fossil-fuel industry. This is because biofuels are mixed with oil-based fuels and thus perpetuate the internal combustion engine. However, as was illustrated in his presentation, the balance of forces supporting and opposing government support to biofuels has changed over time.

One important change in the political economy of biofuel policy has been increasingly vocal opposition from the food industry and many NGOs. This is driven by concern about competition between food-and-feed and fuel, which can cause food price hikes and land-use change. Peter Brabeck-Letmathe, Chairman of Nestlé SA, stressed that diverting agricultural feedstock to energy use is bound to have a profound effect because, "in the food market you need 2,500 calories per person per day, whereas in the energy market you need 50,000 calories per person." Brabeck-Letmathe also underscored that biofuel production is very water-intensive and referred to the body of research indicating that “the world will be running out of water before it runs out of oil.”

Mark Halle, Vice-President of the International Institute for Sustainable Development (IISD), presented the policy brief prepared by the IISD’s Global Subsidies Initiative (GSI) and funded by Nestlé SA, Cultivating Governance: Cautionary tales for biofuel policy reformers. This aims to guide policy-making on biofuels in circumstances of such increasingly polarized debate. Halle argued that government support to biofuels has been an extremely expensive way to achieve its stated policy objectives, such as mitigating climate change, spurring “green” innovation, and strengthening energy security. He stressed that the EU biofuel policies should be guided by the Precautionary Principle which says that “when an activity raises threats of harm . . . precautionary measures should be taken even if some cause-and-effect relationships are not fully established scientifically”.

In the meantime, the challenges of formulating and implementing sound biofuel policies are not unique to the EU. Many developing countries look at biofuels as a necessary replacement of fossil fuels. Indonesian Ambassador Oegroseno explained that although at present Indonesia is the largest producer of palm oil, a common feedstock for biodiesel production, it will also become the largest consumer of this commodity by 2013, as the country’s energy demand continues to grow. This may mean that Indonesian palm oil will be diverted from exports to the EU.

Géraldine Kutas, Head of International Affairs of the Brazilian Sugarcane Industry Association (UNICA), noted in her presentation that trade-offs cannot be avoided in a world of limited resources but unlimited demand. According to Kutas, Brazil’s 40-year experience of the biofuel industry development shows that some of the trade-offs can be minimized and the country successfully produces both food and biofuels. Key to this success has been a flexible approach, which is based on free market-based allocation of feedstocks and their production factors to food or fuel uses – rather than driving production with subsidies.

One of the discussion’s recurring messages was the need to eliminate other energy market pricing distortions, particularly subsidies to fossil fuels (worth at least US$ 600 billion in 2011), in order to make the free market – rather than government support – the basis for resource allocation to the biofuel industry. In the meantime, the EU’s low-carbon future cannot rely on biofuels alone, as renewable energy and energy-saving options are also important part of the solution.
 

Agenda

Welcome notes:

• Sirpa Pietikäinen, MEP, Chair of GLOBE-EU
• Peter Brabeck-Letmathe, Chairman, Nestlé SA (see blog posts on the event here and here)

Presentations and commentaries:

• Presentation by Mark Halle, Vice-President, International, IISD, of IISD-GSI policy brief: Cultivating Governance: Cautionary tales for biofuel policy reformers
• Commentary by Ronald Steenblik, Senior Trade Analyst, OECD. Presentation: The Political Economy of Biofuel Policies.
• Commentary by Raffaello Garofalo, Secretary General, European Biodiesel Board
• Commentary by Arif Havas Oegroseno, Ambassador of the Republic of Indonesia to the EU (see a report on the Embassy's website here)
• Commentary by Géraldine Kutas, Head of International Affairs, Brazilian Sugarcane Industry Association (UNICA). Presentation: Biofuels Policy: Some Insights from Brazil.

Concluding remarks:

• Gerben Jan Gerbrandy, MEP, Vice-Chair of Committee on the Environment, Public Health and Food Safety of the European Parliament
• Peter Brabeck-Letmathe, Chairman, Nestlé SA