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The EU’s biodiesel industry, worth $13 billion by latest estimates, is at risk of being legislated out of existence if policymakers decide to integrate indirect land-use change (ILUC) measures into its biofuel policy framework.

After rising sugar and grain prices, ILUC represents the other negative effect of using arable land to grow biofuel feedstock. Although scientists debate the scale of the impact, ILUC attempts to quantify the conversion of forest and biodiverse grasslands into farmland in order to compensate for the loss of food output induced by biofuels. ILUC highlights the problem associated with using food crops for biofuels, and calls into question biofuels’ touted environmental benefits.

Any integration of ILUC would force the sector to adapt and this could affect the European biofuels and commodity markets. The 2009/28/CE European directive has set a target of 10% biofuels for global transport fuel consumption by 2020. By eliminating the use of oilseed-based biofuels, GHG savings could reach 70% by 2020 compared to 15% if oilseed-based fuels are allowed, far lower than the mandated 35% threshold.

The EC is contemplating two mechanisms for integrating ILUC measures, which could materialize this month:

1. Add penalty points (“ILUC factor”) in order to counter the risks of land-use change
2. Upgrade existing sustainability standards by jacking up the percentage of greenhouse-gas emissions (established in green safeguards in 2008) biofuels have to save compared to fossil fuel and thus making it harder for less-green biofuels to qualify

Total CO₂ impact of biofuels by type of substrate (Source: European Commission by Reuters)

In 2010, around 80% of the biofuel European production was biodiesel. Mainly produced from oilseeds, European biodiesel production would suffer signficant consequences if ILUC measures are integrated. This could lead the European biofuel economy moving in a new direction, one which would promote the production of bioethanol. As a consequence, we could see lower prices for vegetables oils and higher prices for sugar and grains on the commodities market.

It remains to be seen how the European legislative authorities will judge the contested concept of ILUC. The two key points up for consideration are whether the EC referee for stability or legislative uncertainty, and will it decide in the economic interest of the biodiesel industry or for credibility of its environmental policies?

EU’s ILUC debate in the news:

• Reuters on the climate impact threatening biodiesel’s future in the EU
• Climate Spectator on Europe’s biofuels divide

Sources:

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Recent studies in the USA and the EU have shown uncertainty of CO₂ impact calculations for Brazilian ethanol emissions on the same crop. RANKIN, Jennifer. « Growing pressure to change EU biofuel policy », in EuropeanVoice.com, April 28^th 2011. < http://www.europeanvoice.com/article/imported/growing-pressure-to-change-eu-biofuel-policy/70930.aspx > [Page viewed the July 8^th 2011]

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Biofuel is required to meet a 35% threshold of greenhouse-gas savings over fossil fuel, rising to 50% from 2017. VOGEL, Toby. « Commission study questions carbon dioxide benefits from EU biofuel », in EuropeanVoice.com, June 23^th 2011. < http://www.europeanvoice.com/article/imported/commission-study-questions-co2-benefits-from-eu-biofuel/71400.aspx > [Page viewed the July 9^th 2011]

Image: Flickr/Dag Endresen