Reflections on the Commission’s ILUC-Biofuels Proposal

The day after I attended a Malaysian palm oil conference last week, the European Commission released its formal ILUC proposal on biofuels. I provided a series of views at the conference on the current EU regulatory environment on biofuels that gave a glimpse of the widely reported leaked version of the Commission’s initial proposal in September.

If only the Commission’s formal proposal had come out a day earlier perhaps the mood in Malaysia about playing in the European market wouldn’t have been so gloomy. I’ve updated my presentation here in slides 8 and 9 in yellow to reflect these changes to the Commission’s formal proposal.

Compared to the initial one leaked in September, the formal version that now awaits a stormy debate in the European Parliament and Council backs away from an immediate effort to entirely ditch first generation/food-based biofuels (which is largely what all biofuels produced and used globally are today). Call it pragmatism or industry pressure, but the Commission’s formal version — in contrast to the leaked version — still makes it possible, even if it’s a more difficult possibility under the new version, for Member States to comply with the 10% renewables-in-transport target by 2020 as well as the Fuel Quality Directive (FQD).

Specifically, this step back focuses on the watering down of so-called ILUC “factors,” that beast of a reference to the so-called indirect emissions that NGOs say are spewed in spades by first generation biofuels. The ILUC factors have moved from being a mandated reporting requirement applicable to the FQD to not being a legal requirement (stay tuned though, that could still change).

Still, the proposal’s maintaining of the 5% cap on first generation biofuels toward compliance with the EU’s 10% renewables-in-transport target is a major problem for today’s commercial biofuel producers. The EP’s ENVI Committee is foaming at mouth to get the dossier on this proposal and will, to be sure, make ILUC factors a legal requirement in its own eventual proposal. Expect various Council members, however, to put their foot down on factors, including Germany and Spain.

Whenever a policy proposal is based on a set of arbitrary assumptions (like ILUC factors) — without empirical groundings — you can always expect an even more animated debate.

The EU will be lucky though to have an ILUC policy, of any flavor, in place before EP elections in summer 2014 and before a new Commission is in place that year. The Commission itself was almost two years behind schedule on this proposal announced last week because of the politics of the issue. And during that two-year period, EU economic conditions have gotten worse across the board, including record level Eurozone unemployment. Those economic realities will make it more difficult for Member States to sign off on a proposal already burdened by slippery technical qualifications that could further undermine employment prospects and renewables’ investment in Europe.

Also, some needed perspective: according to the UN FAO, biofuels account globally for a very small amount of global agricultural production, about 2%, or roughly 36 million hectares, out of a total global cropland of 1,527 million hectares, although the share is rising.

The central point though is that ILUC carbon accounting can be discussed until the cows come home, with no intellectual clarity, as numerous research has certified. ILUC carbon accounting is a very young child. Compared to climate change science – which is decades’ old and empirically grounded – ILUC research remains in its infancy at five years old.

ILUC research is essentially about trying to model cause and effect behavior of commodity markets and human behavior in general and about finding data to support the thousands of assumptions that are the basis of the research. It can hardly be trusted as a basis for public policy when modeling results change by the day and when there is no representative, scientific acceptance of what type of carbon accounting model should be followed for assessing the potential indirect effects of different biofuel feedstocks.

For sure, the risks of indirect effects from biofuels are real and need to be addressed. That is why addressing ILUC risks through mitigation measures, such as utilizing co-products from biofuel production, manufacturing efficiencies, and crop production on degraded lands, should be thoroughly pursued to deal with these risks. ILUC mitigation is something industry has been pleading to the Commission about for months to little avail.

But let’s see if the Council can inject intellectual vitality into the debate with a serious examination of ILUC mitigation, instead of getting swept up in the feel-good factor of ILUC carbon accounting, which will not produce desired or measureable results.

Spencer Swartz