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Monday, April 14, 2008

Biofuels: will the Commission start listening?

We would never accuse them of lacking persistence… the EU Commission is sticking to its guns on biofuel targets, despite a wave of negative press coverage brought on by soaring food prices, and – perhaps most significantly – outbreaks of hunger-related violence in the developing world. This has so far occurred in several West African countries, Egypt and Haiti (leading to the fall of the Government there). We are also told that the Bangladeshi army has had to take control of food distribution.

Meanwhile the list of international institutions calling for the immediate suspension of biofuel targets grows ever bigger: the UN, IMF, World Bank, OECD, European Environment Agency and the EU Joint Research Centre are those we can think of (the latter two are responsible for providing scientific advice to the EU Commission).

Despite all this, the Commission still has its head in the sand on biofuels. Andrew Bounds at the FT reports that Barroso will continue to push ahead with the 10% target. Meanwhile, Energy Commissioner Andris Piebalgs, in an extraordinary blog post, attempts to make the Commission’s case:

In Europe, we use less than 2 percent of our cereals production for biofuels, so they do not contribute significantly to higher food prices in the European context.”

This is misleading in a number of ways. A relatively small amount of cereal production may be currently diverted towards biofuels, but Europe has always been a far bigger producer of biodiesel, which is derived from oilseed plants such as rapeseed – not cereals. So the total crop production devoted to biofuel production in Europe is already far higher than 2%.

More importantly, consumption of biofuels in Europe may be very low at the moment, but the target for 2020 will change this dramatically in the future – use of these fuels would have to increase around fivefold. Academic estimates suggest 38% of current agricultural land in Europe would need to be turned over to biofuel production in order to meet that demand. The IMF note that biofuels were responsible for just under half of the increase in the consumption of major food crops in 2006–07. Of course, a great deal of this is due to the separate US targets. But the EU targets are just as ambitious as those in the US, and America has had a highly interventionist biofuel policy for the past couple of years, whilst Europe’s hasn’t really kicked in yet – meaning that much of the future escalation of demand will most likely come from this side of the Atlantic.

Piebalgs continues:

Even if we reach our 10% biofuels target by 2020, the price impact will be small. Our modeling suggests that it will cause a 8 to 10% increase in rape seed prices and 3 to 6% increase in cereal prices.”

Exactly the same thing was being said by the farm lobby in the US prior to the introduction of biofuel subsidies over there. Moreover, the Commission’s modelling is based on the assumption that ‘second generation’ biofuels (which would be derived from wood etc, rather than food crops) will be developed in the near future, and can satisfy around 30% of demand. But this is a non-existent technology, and there is no scientific consensus as to whether these fuels can actually be produced cost-effectively on an industrial scale. The Commission also assume imports from cheaper biofuel producers (such as Brazil or Indonesia); but at the same time the EU maintains big import tariffs on ethanol. In any case, importing palm oil from South East Asia raises some serious environmental concerns – massive deforestation is already happening in this region in anticipation of future import demand from Europe.

The Commission’s figures for commodity price changes are therefore likely to be a big underestimate. But even if they are correct, this increase in price is highly significant for the world's poorest people, who already spend 50 to 80 percent of their total household income on food. Profs. Runge and Benjamin Senauer estimate that for every percentage increase in real prices of staple foods, 16 million extra people will be drawn into food insecurity. Those in the most marginal positions will starve.

The Commissioner responds with the following:

The charge now is that EU biofuel policy will contribute to third world poverty by driving food prices up. My impression from this debate sometimes is that we the Europeans know best what is good for people in developing world. Let them speak for themselves.”

Clearly Piebalgs hasn’t been reading the news lately – the message from developing countries seems pretty clear...

Without a good domestic production base for so called first-generation or crop based biofuels, the more innovative and efficient products will probably never take off. We need to use first-generation biofuels as a bridge to the second generation biofuels using lignocellulosic materials as a feedstock.”

Apologists for biofuels usually argue that we need targets for biofuels now in order to spur development of new and better versions of the Victorian-era first generation agrofuels we rely on now. But according to the EU’s Joint Research Centre, €33-60bn will be spent on subsidising biofuels up until 2020. To reemphasise the point: there still no viable industrial process for producing second generation biofuels – it is pure theory. Is this really the time to be throwing taxpayers’ money at something that might prove to be a mere pipe-dream? If second generation biofuels can in fact be developed, fair enough: but surely the research funding necessary to work out how would come in at a tiny fraction of this insane cost? Why does the EU continue to defy all scientific and economic logic to promote a policy which wastes such vast amounts of our money, pushes the poor towards starvation, and will harm rather than help the environment? Piebalgs in fact answers this question in the conclusion of his blog piece:

The EU’s ambitious but realistic 10% target will provide the market pull stimulation that farmers need to face a future market based agricultural economy and less dependence on EU subsidies.”

Translation: it’s a great way of replacing the CAP. Direct farm subsidies can be scaled down and substituted with binding targets which create artificial, state-mandated demand – another mechanism of price support for EU agribusinesses. In this light, it is abundantly clear why Brussels is so determined to press ahead with its lonely campaign for the promotion of biofuels.

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