EU Biofuel Policy and Development

Christopher Stevens

Presentation to International Consulting Economists’ Association, 12 February 2008

EU Biofuel Policy Development: ICEA, 12 February 2008 2

Clearing the decks (1)

How are biofuels different from other: exports; import substitution goods?

If demand increases sharply: resources will move out of other areas:

• either directly – maize to jatropha;• or indirectly – ‘Dutch disease’.

Possible key issues: demand is policy driven, so volatile; goods not necessarily sourced from lowest-’cost’ supplier; effect of resource competition very visible.

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Clearing the decks (2)

Which countries do/will produce more:

for import substitution:

• depends on relative oil/biofuel costs;

for export:

• depends on biofuel/alternative export price;

• market access.

Some examples:

Brazil: yes for import substitution / ? for export;

Mauritius: ? for import substitution / no for export;

Mozambique: no for exports.

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EU biofuel policy objectives

1. Reduce greenhouse gas emissions.

2. Boost the decarbonisation of transport fuels.

3. Diversify fuel supply sources and develop long-term replacement fuels.

4. Offer new opportunities to diversify income and employment in rural areas.

In reality, (3) and (4) take precedence.

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EU supports for biofuels

EU subsidy to biofuels occurs via: direct subsidy for energy crops; some direct subsidies ‘at the petrol pump’; indirect support through protection from imports.

Nos (1) and (3) are directed just to EU suppliers.

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EU trade policy

No CN codes for ‘biofuels’.

But we can see:

countries with low/zero tariffs unlikely to supply (because they have free access for sugar);

countries able to supply (e.g. Brazil, Pakistan) face high tariffs;

and national standards vary.

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EU tariffs on major biofuels and foodstocks

Code Description Tariff payable under selected import regimes

MFN GSP GSP+ Cotonou

Ethanol

22071000 Undenatured ethyl alcohol of actual alcoholic strength of >= 80%

19.2€/hl n/a 0 0

22072000 Denatured ethyl alcohol and other spirits of any strength

10.2€/hl n/a 0 0

Bioethanol constituents

10030090 Barley (excluding seed)

See note (a) n/a n/a

Within the limit of the quota [15,000 tons] reduction 50%.

10059000 Maize (excluding seed) Reduction 1.81€/ton

12129920 Sugar cane 4.6€/100 kg net n/a n/a 3.8€/100 kg net

17031000 Cane molasses resulting from the extraction or refining of sugar See note (b) n/a n/a

Within the limit of the quota [600,000 tons] reduction 100%.

Biodiesel constituents 

1507 Soya-bean oil 3.2-9.6 0-6.1 0 0

1508 Groundnut oil 0-9.6 0-6.1 0 0

1511 Palm oil 0-12.8 0-4.4 0 0

1513 Coconut copra, palm kernel or babassu oil 2.5-12.8 0-8.9 0 0

1514 Rape, colza or mustard oil 3.2-9.6 0-6.1 0 0

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The oil-food price link: two stylised scenarios

Scenario 1: oil price rises leading to diversion of resources from food to

biofuel production; food prices rise; all oil/food importing countries face adverse t-t shift; biofuel producing countries have partly offsetting gain.

Scenario 2: oil price rises leading to new production of biofuels; food prices not affected; all oil importing countries face adverse t-t shift; biofuel producing countries have partly offsetting gain.

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The link with EU policy

EU policy: makes scenario 1 more likely; makes offsetting biofuel export gains less likely.

EU producer subsidies increase likelihood of biofuel-food resource diversion:

because conversion efficiency is low; because likelihood of new production is low.

EU trade policy limits scope to export biofuels.

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A modest proposal

Whether or not new EU targets will cause development problems is an empirical question but:

more feasible with liberal trade than without; more feasible if biofuel production encouraged in areas

where most likely to be additonal.

Use GSP to give Brazil, Pakistan … duty-free access for denatured ethanol.

Merits:

by limiting to ethanol ACP/LDC sugar exports continue;

by using GSP environmental conditionality a possibility.

EU Biofuel Policy and Development

Christopher Stevens

Presentation to International Consulting Economists’ Association, 12 February 2008