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Report challenges EU subsidies for biofuels

The European Union’s support for biofuels may not be the most cost-effective way for the 27-country bloc to tackle climate change, a new study has concluded.

Last year EU governments spent at least €3.7 billion ($5.2 billion) on subsidizing biofuel production. Such support is likely to grow in the coming years because the Union has set a strategy of raising the quantity of road fuel generated from biofuels from its present level of 2-10% by 2010. But the International Institute for Sustainable Development (IISD) in Geneva has queried if allocating large amounts of public funds to biofuels is desirable.

In a study published Oct. 3, it calculates that the cost of using ethanol from sugar beet to avoid emitting one tons of carbon dioxide (CO2) - the main gas blamed for climate change - ranges from slightly less than €600 euros to €800 ($760-1,000 dollars). For that sum, 160 tons of carbon dioxide could be “offset” by buying “credits” on the Chicago Climate Exchange. Credits are used for such purposes as planting trees that absorb carbon dioxide rather than release it into the atmosphere, as well as for developing renewable energy. Producing biofuels is generally an energy-intensive business, which in itself makes use of considerable quantities of fossil fuels. As a result, the study says, the overall saving of fossil fuels brought by biofuels may be low, and introducing carbon or pollution taxes may prove more effective.

Generally, biofuels made from high-sugar crops or recycled cooking oil can contribute to higher savings on fossil fuels than those made from oilseeds or grains. More than 90% of the 6 million tons of biofuels produced in the EU during 2006 was made from rapeseed oil.

Ron Steeblik from the IISD’s Global Subsidies Initiative urged the Union to eliminate tariffs on imported ethanol, a fuel made from sugar. Ethanol with an alcohol content of 80% is subject to a tariff of €19.20 ($27 dollars) per 100 liter. “Denatured” alcohol, which has a lower content, is taxed at just over half that level. These taxes are inimical to poor countries like Brazil, Steeblik argued. “This is contrary to the EU’s general policy of trying to reduce tariffs,” he told IPS. “It is far higher than any tariff on industrial goods and is an old-fashioned instrument for protecting agriculture. Import tariffs on ethanol from Brazil, one of the most efficient producers of biofuels, reduce the amount of sales that can be made by a developing country.
The EU’s policy is incoherent. If biofuels are so good, why is it taxing them so heavily at the border?" The EU executive, the European Commission, is expected to propose a new law setting down the criteria for supporting biofuels by the end of this year. Officials are examining how to prevent support for biofuels in cases where their production involves the emission of more greenhouse gases than would eventually be saved by using them instead of pure fossil fuels. Producing biofuels from wetlands and peatlands situated on high stocks of carbon leads to high emissions of greenhouse gases.

Emilie Pons, a researcher at the Paris-based university Sciences Po, said that biofuels raise ethical questions. “The working conditions in the plantations for cane sugar in Brazil and palm oil in Malaysia come close to slavery,” she said. “The environmental side of things is not sparing either, with pollution of soil and water created by the production of biofuels, and a dramatic deforestation under way in Indonesia and Brazil.” She argued that the new EU law should apply the same standards to imported biofuels as those produced within the Union. “If Europe really wishes to tackle the problem of pollution and the global energy challenge, it is important that it shows example and applies to itself the ethical measures that it asks others to take.”

On the other hand Lena Ek, a Swedish Liberal member of the European Parliament (MEP), said that “biofuels will be there as part of the solution” to global warming. She asked, therefore, if subsidizing them is “really a bad thing.” Ethanol has proven economically beneficial to Brazil, she added. “Brazil has got out of the fossil economy,” she noted. “Last year it paid off the debt it owed to the World Bank.” Swedish conservative MEP Anders Wijkman said: “We need subsidies if we want new energy in the market place. But the question is how do we lock ourselves into a production scheme that is really feasible. The logical question is how to ensure the end result really eliminates carbon dioxide.”

A European Commission official said that there is a “serious misunderstanding” about the factors motivating biofuels policy in the Union. One widely held view, he said, is that the principal objective is to support the income of crop farmers. “It has nothing to do with that,” the official said. The real issue for the Union, according to the official, is having a “policy in place” to meet an increased demand for biofuels. But Ron Steeblik said that high subsidies for biofuels “could potentially create a lot of instability for other markets, including the agriculture market.” His colleague at the Global Subsidies Initiative David Runnalls said that the EU should beware of aping the support system for biofuels in the US He argued that it is preferable to support research into biofuels, as has been done in Canada, than to link support for them to the level of production, the method favored in Washington. In some parts of America, he said, subsidies account for $2.40 of the price of a three-dollar gallon of biodiesel. “There is a potentially distorting effect of biofuels wrongly applied in the wrong place and the wrong time,” said Runnalls. “We are not opposed to subsidies. What we are opposed to is governments spending them in an ill-advised fashion.” (