Boom or bust – the future prospects for biofuels and oilseed growers

NNFCC

NNFCC: The Bioeconomy Consultants

Boom or bust – the future prospects for biofuels

and oilseed growers

David Turley

Policy and Strategy Manager

5 February 2012

NNFCC

NNFCC: The Bioeconomy Consultants NNFCC: The Bioeconomy Consultants

Policy History (1)

EU Biofuels Directive 2003 (promotion and use of biofuels) established the first

biofuel targets as part of response to 1997 Kyoto Protocol agreements

2% substitution by energy content by 31/12/2005

rising to

5.75% substitution by energy content by 31/12/2010

At the time, the EU stated its longer term aim of increasing

this target to 20% by 2020

NNFCC


Policy History (2)

However, no

target has been

set beyond

2013, and

currently there

is no intention

by UK

government to

increase the

target

In UK this was transposed into the Renewable Transport Fuels Obligation (RTFO) (introduced 15 April

2008) which set a rising obligation on fuel suppliers to substitute an increasing proportion of their fuels (by

volume) with biofuels.

NNFCC


Major UK biofuel facilities

This has resulted in

development of 1 billion

litres of biofuel capacity

in the UK, representing

£1 billion of investment

and at least 3500 jobs

NNFCC


UK biofuel production under the RTFO

3.6% of UK road

transport fuel

use

NNFCC


UK biodiesel feedstock origin

RTFO Carbon & Sustainability reports

NNFCC


• Has been gradual shift from biodiesel towards domination by bioethanol, partly due to import of

cheap Brazilian ethanol and more recently ethanol dumping problems (US ethanol)

• EU road fuels market is shifting from petrol to diesel dominated, so biofuels trend is moving in

wrong direction !

• Over time has been declining use of OSR in UK biofuel use but also fall In palm and soy as use of

waste oil has expanded.

• In December 2011, the RTFO was ‘RED proofed’ and 2 - RTFO certificates/litre were awarded to

waste-derived fuels (including UCO) from 15 December 2011

• In the UK Tallow and UCO had its fuel duty rebates removed from April 2012. Use of UCO is

therefore expected to fall - preliminary results suggest this is the case, but there has been no

revival in use of virgin oils (results from first 4 months of 2012/13 obligation period)

• Biodiesel stagnation is also affecting wider EU Market

UK biofuel developments

NNFCC


European biodiesel production

Source: European Biodiesel Board

Biodiesel production has not increased in recent years for the EU’s major producers (Germany

and France) and overall production has fallen recently, for the first time.

NNFCC


Policy History (3)

The Renewable Energy Directive (2007) set out the EU’s Renewable energy policy ambitions (heat,

power and fuels) for 2020. This included targets for;

• 20% share of energy to come from renewable resources

• 20% improvement in energy efficiency

• 20% reduction in GHG emissions

It also included a sub target that 10% of energy in transport sector should be from renewable

resources

- but RED now included defined sustainability criteria for any supported biofuels and a

commitment to review these

In addition to the RED the Fuel Quality Directive (FQD) (2009)

called for a 6% saving in life cycle GHG emissions from transport fuels

by 2020

- Biofuels were going to have to prove their worth !

NNFCC


RED sustainability criteria

• Restricts sourcing from some land types (high biodiversity or carbon resource)

• Imposes minimum GHG savings (well to wheel)

• 35% GHG saving, rising to

• 50% GHG saving from 1 Jan 2017, and

• 60% GHG saving for new plants starting in or after 1 Jan 2018

NNFCC


‘Conservative’ RED defaults for GHG emissions (g CO2/MJ)

Ethanol Biodiesel

Meeting the RED

default values will

be more difficult

for crop-derived

biodiesel than crop

-derived ethanol,

especially from 2018

and could rule out

crops like oilseed

rape as feedstocks

NNFCC


The EC has been struggling to deal with the contentious problem of indirect land use change (ILUC) and to

introduce a factor into the RED to account for ILUC impacts. The argument for ILUC is that where production of

feedstock for biofuels displaces a food crop, then in a yield constrained system, production of that crop (or an

alternative) now occurs elsewhere and this may have significant environmental consequences (particularly if

this results in deforestation). The impacts of this should then be reflected in the environmental footprint of the

biofuel. The arguments reign over how this can be equitably quantified and allocated.

Source: Neste Oil

NNFCC


Recent Commission proposals

In October 2012, The European Commission published its proposals to control the

potential scale of any ILUC impacts and to account for the GHG impacts of

ILUC for biofuels.

The stated objectives of the Commission are to:

• Transition to biofuels delivering significant greenhouse gas savings even when any

ILUC impacts are accounted for

• Ensure that biofuels should only be supported if thy deliver substantial GHG savings

AND are NOT produced from food or feed crops

NNFCC


Key aspects of Commission proposals (Oct 2012)

• Limit crop-derived biofuels to max of 5% by energy content of 2020 transport fuel use.

• Stated ‘aspiration’ to remove all subsidies for crop-based biofuels post 2020.

• To only support biofuels that provide a greenhouse gas saving of >60% for new plants after 1 July

2014 (2 years earlier than current UK RTFO)).

• To allow biofuels made from non-land using feedstocks to count four times towards the

achievement biofuels inclusion target

– MSW, Algae, Residues

– Waste cooking oil will still count twice.

NNFCC


Commission proposals (cont)

Proposed ‘ILUC factors’ (to add to well to wheel GHG LCA’s)

– sugar-based biofuels: 13 g CO2 eq / MJ

– cereals/starch based biofuels: 12 g CO2 eq / MJ

– vegetable oils: 55 g CO2 eq / MJ

– Waste, residues Zero

The Commission will retain the power to amend/extend these and based on the

outcomes of further work (Dec 2017), will consider introduction of such values from 1

Jan 2021

The ILUC values were derived from work by the International Food Policy Research Institute and

their use has drawn significant industry criticism, in part as the figures have not been subject to

peer review and there are a number of limitations in the approach acknowledged by the report

authors.

NNFCC


Impacts of proposed ILUC factors on default life cycle GHG

emissions savings (red bars)

NNFCC


Impacts of proposals

• Unlikely that further biodiesel plants will be built based on utilisation of oil crops as feedstocks.

• Unlikely that further 1st generation bioethanol plants will be commissioned, due to lack of investor

confidence in the sector.

• Fuel pool is increasingly diesel dominated and prospects for encouraging further uptake of

biofuels (e.g. in aviation sector and shipping) are better for biodiesel fuels, due to better fungibility

characteristics, yet this is the resource that will be most constrained going forward.

• Cannot rely on increasing use of ethanol to meet 2020 targets due to blend wall limitations of

current car fleet (and declining proportion of gasoline-fuelled cars in European fleet).

NNFCC


Impacts

Further investment in the biofuels sector will be

halted by lack of confidence in an already difficult

economic climate

Pressure from

imports will

increase, further

reducing

the market

opportunity for EU

producers

The likelihood of

meeting 2020

targets will be

reduced,

There is no guarantee

that the significant

investment required to

commercialise advanced

processes (using wastes

and non crop biomass)

will follow, due to the

uncertainty in the sector

AER-GAS.de

NNFCC


Impacts

• Fails to recognise the value of crop derived biofuels delivering significant GHG reductions

Future

prospects ?

NNFCC


Future UK oilseed rape prospects

• Despite all the problems in the biofuel sector, oilseed rape prices have remained buoyant, due

climatic issues affecting global vegetable oil supplies.

• Only around 1% of the UK oilseed rape crop is currently used as a virgin oil in UK biofuels.

• However, the UK has benefitted from the export market opportunities created by the German and

French biodiesel markets. 75% of German oilseed rape production is currently destined for

biofuel production and other demands are met through import.

• Even with a standstill in current biodiesel market development, there will remain a strong demand

for oilseed rape in the medium term from the European mainland, this will help to support current

UK areas of oilseed rape cropping, though prospects for any further expansion will be tempered.

NNFCC

NNFCC: The Bioeconomy Consultants

The NNFCC provides high quality, industry leading consultancy

for more information contact us

Email - [email protected]

+44 (0) 1904 435182

Follow us on Twitter @NNFCC

• Future Market Analysis

• Feedstock Logistics Planning

• Sustainability Strategy

Development

• Technology evaluation & associated

due diligence

• Project feasibility assessment

• Policy and regulatory support

Contact David at

[email protected]

David Turley Policy and Strategy

• Bio-based opportunity

analysis

• Sustainability

mailto:[email protected]

Documents

Boom or bust – the future prospects for biofuels and oilseed growers