Biofuels Trade and Certification

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Biofuels Trade and Certification Gernot Klepper The Kiel Institute for the World Economy Kiel, Germany gernot.klepper@ifw-kiel.de 1st Workshop ESSP Bioenergy Piracicaba, 19-21 July 2008

Outline Outline Biofuels as a global commodity Imports and Exports Certification and Sustainability Certification Process Open Questions

Biofuels as a global commodity Bioethanol Production 2005 South America 35% Asia 14% Oceania 0% Sweden 4% UK 9% Other EU 10% France 30% EU 6% Other Europe 3% Spain 15% Quelle: F.O. Licht N&C America 41% Africa 1% Poland 7% Italy 5% Hungary 2% Germany 18% 45 Mio. m³ Ethanol were produced in 2005, in 2006 50 Mio. m³ are expected Only about 2,7 Mio. m³ were produced 2005 in the EU, for 2006 3,1 Mio. m³ are expected

Biofuels as a global commodity Production of Biodiesel 2005 Others EU-25 10% Slovakia 2% Czech Rep. 4% RoW 8% USA 7% EU 85% Poland 3% Italy 12% Germany 53% France 16% Quelle: Diester Industrie International/ EBB Worldwide Biodiesel production is 3,8 Mio. t in 2005 Of which 3,2 Mio. t are produced in the EU, more than half of it in Germany

Biofuels as a global commodity Biofuel trade is growing faster than production 25 20 15 10 Mill. m³ 14,1 13,0 Bioethanol Production 14,7 14,7 12,6 11,5 10,6 16,1 17,8 20,2 3,5 3,0 2,5 2,0 1,5 Mill. m³ Total Bioethanol Exports 1,0 5 0,5 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 0,0 1998 1999 2000 2001 2002 2003 2004 2005 2006/07 Source: F.O. Licht, 2007; UNICA

Biofuels as a global commodity Ethanol is classified as an agricultural good and enjoys much higher tariff rates than biodiesel that is classified as an industrial good Import Duty Bioethanol Import Duty Biodiesel EU 0.192 /liter (undenatured) 0.102 /liter (denatured) 101 developing countries enjoy duty free access. Brazil is not among them (GSP, EBA, ACP) 6.5% ad valorem Major vegetable oil producers (e.g. ARG, IND, MLY) have duty-free access (covered under GSP) USA 0.1427 US$/l plus small ad valorem tariff (2.5% undenatured and 1.9% denatured) Some countries in the region enjoy various forms of duty-free access (CBI, NAFTA, CAFTA) 1.9% ad valorem India 182% undenatured 30% denatured For use by chemical and petroleum industry: 10% Rates not totally clear, many changes take place 12.5% Crude palm oil: 50% Brazil 20% ad valorem (termporarily lifted, e.g. in February 2006 when sugar prices surged and ethanol shortage was possible) Duty-free trade within Mercosur n.a. Ethanol s agricultural classification allows countries that impose high tariff rates on ethanol more time to liberalize ethanol trade, protecting domestic producers longer

Imports & Exports Exports by Region thousand cubic meters 9000 8000 7000 6000 5000 4000 3000 2000 Total Africa ROW U.S.A. Total Asia/Pacific EU Other America Brazil Imports by Region 1000 0 4500 4000 2003 2004 2005 2006 2007 3500 mill. litres 3000 2500 2000 1500 Other European Imports US Imports CBI Imports 1000 500 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Imports & Exports and the forecast for the next decade (FAPRI) 4.000 3.500 3.000 Net-Imports by Region mill. Gallons 2.500 2.000 1.500 1.000 500 4.000 3.500 3.000 United States European Union Japan India Canada South Korea Net-Exports ROW Exports by Region 0-500 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 mill. Gallons 2.500 2.000 2016 2017 1.500 Brazil China 1.000 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Imports & Exports

Certification & Sustainability An internationally traded commodity such as bioethanol is homogeneous, i.e. it is not possible to judge the sustainability of a particular biofuel! Fuel Quality Directive Renewable Energy Directive Biomass sustainabilty decree GHG savings Sustainable cultivation 10% GHG savings per unit of energy until 2020 (1% p.a. from 2011) opposed by EU-Parliament n.a.. Proof of minimum GHG savings: 35% is necessary for accounting towards biofuel targets Production according to environmental criteria of Cross Compliance (EC 1782/2003) Proof of minimum GHG savings: 30%/ 40% from 2011 Otherwise no accounting on quota or tax reduction Cross possible Compliance/ Good Agricultural Practices or similar regulations Otherwise compliance with certain regulation Protection of natural habitats n.a. No feedstocks from high biodiversity land, wetlands, untouched peatland, continuously forested areas No cultivation in high nature value areas Social sustainability n.a. (is being asked for in current discussions) n.a. (is being asked for in current discussions) n.a.

Certification & Sustainability Certification Requirements: The EC proposal requires minimum GHG savings, the protection of certain land types and cross compliance Requirements for biofuels and their production GHG savings of at least 35% Not from high biodiversity value land Not from land with high carbon stock Cross Compliance (EC1782/200317) Carbon stock losses from land use change ruled out Forest undisturbed by significant human activity Wetlands, including pristine peatland Environment Designated nature protection areas Areas with a Continuous Forest Cover Good Agric. and environmental condition (Art. 5) Grassland with high biodiversity

Certification Process Certification of Biofuels in the Value Chain: Biofuel value chain Order process Mineral oil industry Trader Biofuel producer Feedstock produer/ plantation Endorsement Certificates Delivery process Relevant biofuels for pilot phase National governmental body Bioethanol Biodiesel Vegetable oil ETBE Metasystem

Certification Process Real life has hardly any similarities with an idealised value chain Order and delivery process still simplified Transport to port Regional port warehouse Shipping operator International port Order Road transport Shipping operator Train transport Warehouse Trader Germany Oil mill and warehouse Malaysia Biodiesel plant and warehouse Malaysia Oil mill and warehouse Malaysia Biodiesel plant and warehouse Germany Customs Refinery with warehouse customs warehouse Mineral Oil- Company Order Quota credit acceptance Customs (Hauptzollamt)

Certification Process The project is online: www.iscc-project.org

Open Questions Monitoring and identifying land use change Assessing the emissions of non-co 2 GHGs Identifying High Conservation Value Areas