October 23, 2013
The basis of the case against the use of food crops in the production of biofuels is that it raises food prices and leads to environmental degradation in crop exporting third countries. This is the justification for the European Commission’s proposal to limit food crop utilisation in the production of biofuels. The proposal is that such use should be limited to 5 per cent of the EU’s Renewable Energy Directive (RED) total – rather than the currently planned 8.5 per cent target by 2020 in the existing legislation.
Claims that biofuel production raises food prices or leads to the destruction of natural habitats in food exporting countries are highly questionable. The major weakness in the arguments appears to be the relatively small proportion of the world cereal and oilseed production represented by biofuel use. Currently, less than 1 per cent of global farmed area is used for the production of biofuel feedstocks. If the EU’s current renewable energy policy were amended to include the 5 per cent ‘first generation feedstock’ (cereals and oilseeds) limit then, it is estimated by the Commission’s own analysis, cereal usage would fall by 10 per cent; if a subsidised RED programme were abandoned altogether then the usage in biofuel production would be halved.
However, the effect on cereal prices which would be slight, for the simple reason that only a very small proportion of EU cereal production is used in biofuel production. According to the Commission only 6 per cent of the EU wheat crop and 8 per cent of other cereal crops are converted to ethanol. The five per cent limit would result in only very marginal reduction in producers prices for grains: -4 per cent for wheat and -3 per cent for maize. If there were no EU subsidised EU biofuels policy then cereal use would be halved, but EU cereal prices would be 7 per cent lower and the maize price 6 per cent lower. Such price reductions would have no impact on EU consumption; the impact on retail food prices would be infinitesimal.
More significant is the impact on the vegetable oils sector – both in the internal EU market and on the international market. If there is any significant ‘indirect land use change’ (ILUC) it will be here. The Commission’s estimate is that the 5 per cent usage limit would result in a 17 per cent drop in the EU rapeseed price; removal of the biofuels policy completely would result in a fall in price of close to 50 per cent. Most importantly, the world price of palm and other oils would fall by at least 15 per cent. In fact, there would be a world surplus of vegetable oils which would depress the incomes of major developing country palm oil producers – Malaysia and Indonesia. While only 17 per cent of world vegetable oil production is used to produce biofuels, the bulk of that use comes from these two countries.
The practical implication- rather than that of environmental policy theory – is the damage to the export industries of these two countries. There is no evidence to indicate that additional land will have been brought into production to meet this increased demand from Europe. It Is becoming increasingly clear that the Commission’s 5 per cent limit proposal is merely a piece of political window dressing designed to palliate the anti-biofuels lobby. What Euro-Parliamentarians should be doing is questioning the whole justification of the EU’s biofuels policy. Is it worth spending €8+ billion year for a renewable energy feedstock source which gives only marginal gains in GHG emission reduction? This money would be far better spent on subsidising so-called ‘second generation’ feedstock sources and biodigester plants which would not only give real gains in emission reduction, but also deal with real environmental problems created by excess sewage, food wastes and accumulation of other compostable rubbish.<23/10/2013>