Geneva Roundtable Series on Climate Change, Trade, and Development Trading Biofuel: Markets, Sustainability and Certification 28 February 211 Biofuel markets and trade Overview of current developments Hugo Valin Public Economics Lab - INRA & AgroParisTech, Paris hugo.valin@agroparistech.fr Financial support received by the New Issues in Agricultural, Food and Bio-energy Trade (AGFOODTRADE) (Grant Agreement no. 21236) research project, funded by the European Commission, is gratefully acknowledged. The views expressed in this document are the sole personal responsibility of the authors and do not reflect those of the funders which have not viewed, let alone approved the content of the document. The document does not reflect the views of the institutions of affiliation of the authors either.
Biofuel diversity of markets Two families of transportation fuels Ethanol (Brazil, USA) Biodiesel (EU) Three different layers of markets Refined products (ethanol, biodiesel) Transformed product (vegetable oil, sugar, starches) Raw agricultural product (corn, sugar cane, rapeseed, soybeans ) Different biofuel properties depending on feedstock Blending limits in standard light vehicules (1-15% for ethanol w/o flexfuel, 5-7% for most biodiesel) Different properties depending on vegetable oil (melting point, iodine values, etc ) Drop-in fuels: jatropha, BTL, algae technologies 2
Motivations behind biofuel markets Biomass has been a main source of local energy for ages (fuel wood) and biofuels are used for decades Several motivations for recent public incentives Trade compatibility (OECD,28) 3
Biofuels in Brazil A historical development of ethanol based on sugar cane National Alcohol Program (Proalcool) initiated in the 197s following the oil price crises Sector liberalization in the 199s with end of most public support Success of Flex-Fuel vehicules sale incentives since 23 Current mandate in the 2-25% range First ethanol producer until 26 (US became first) First exporter of ethanol (5-6% of market share until 29) Recent surge of biodiesel production driven by domestic mandate (5% incorporation in 21) Trade policy Tariff on ethanol of 2% temporally dropped on 23/4/21 until end of 211 Biodiesel: 14% 4
199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 Thds barrel per day World ethanol market Consumption Trade: from 7% (26) to 2% (29) Paraguay Virgin Islands, British Australia India Colombia Thailand Canada China EU27 United States Brazil 14 12 3 2 EU27 United States Canada El Salvador Trinidad and Tobago Jamaica Brazil 1 8 6 4 2 1-1 -2-3 -4 5-5 23 24 25 26 27 28 29 Sources: US EIA
US biofuel program Ambitious biofuels targets (RFS) 36 billion gallons up to 222 in which 21 billion advanced biofuels In which 1 billion gallon biodiesel Blender tax credit:.45 USD per gallon corn ethanol 1. USD per gallon biodiesel Up to 1.1 USD per gallon cellulosic biofuels Trade policies:.54 USD per gallon on ethanol imports 4.6 % on biodiesel Domestic market 6 Saturation of market ( Blend wall ) Level of incorporation in cars raised from 1% to 15% for light-duty motor vehicules built after 27. 211 US Mandates Renewable fuel > Advanced biofuel Actual Volume (bn gallon) Ethanol Eq. Volume (bn gallon) Incorpora tion level 13.95 13.95 8.1% 1.35 1.35.78% >> Biodiesel.8 1.2.69% >> Cellulosic biofuel.66.6.3% Source: EPA
EU biofuels program Non binding target of 5.75% for 21 (realized 4% in 29) Mandate of 1% of renewable fuel in road transportation in 22 No subtarget for ethanol / biodiesel mix Tariffs: Biodiesel: 6.5 % Ethanol 19.2 /hl undenatured ethanol 1.2 /hl denatured ethanol Other virgin veg. Oils Sunflower oil Biofuel consumption in EU (29 12.1 Mtoe) Recycled Other oils veg. Oils Animal fats Wheat Soybean oil Palm oil Corn Rye Barley Sugar beet Rapeseed oil Sugar cane 7 Source: USDA Gain Report (21) EurObserv ER(21)
thds barrels per day Biodiesel market development Consumption biodiesel Canada Australia Norway Belarus Korea, South Colombia China Thailand Brazil United States EU27 35 3 3 2 1 Trade in biodiesel: 13% in 29 Argentina Malaysia United States EU27 25 2-1 15-2 1-3 5-4 2 21 22 23 24 25 26 27 28 29-5 25 26 27 28 29 Sources: US EIA 8
thds barrels per day Biodiesel market development Consumption biodiesel Canada Australia Norway Belarus Korea, South Colombia China Thailand Brazil United States EU27 35 3 3 2 1 Trade in biodiesel: 13% in 29 Argentina Malaysia United States EU27 25 2-1 15-2 1-3 5-4 2 21 22 23 24 25 26 27 28 29-5 25 26 27 28 29 Sources: US EIA 9
thds barrels per day Biodiesel market development Consumption biodiesel Canada Australia Norway Belarus Korea, South Colombia China Thailand Brazil United States EU27 35 2% EU rapeseed oil market Trade balance / Prod Rapeseed (left axis) Trade balance / Prod Rapeseed oil (left axis) Share of domestic rapeseed in supplied rapeseed oil (right axis) 1% 3 25 15% 1% 9% 2 5% 8% 15 % 7% 1-5% 5-1% 6% 2 21 22 23 24 25 26 27 28 29-15% 2 21 22 23 24 25 26 27 28 29 Sources: US EIA, UN Comtrade 5% 1
Standards Biofuels currently uncompetitive outside of Brazil Gouverments accept to pay the price in exchange of environmental benefits Qualification thresholds US: 2% or grandfathered for renewable fuels, 5% for advanced biofuels, 6% for cellulosic biofuels EU: 35% for all biofuels, 5% after 217 and 6% after 218 for new installations EU sustainability criteria: no use of biofuel produced from land with high biodiversity, high carbon storage or peatland Certification approach (Producer standards, ISO ) Incorporation of emission from indirect land use change (iluc) US EPA: most biofuels qualified at 2% EU: European Commission examines the issue 11
Trade issues Ethanol market strongly protected Brazilian paradox ( +8% production increase on 26-21 but fuel ethanol exports divided by 4, down to 2% of production) Pressure in the US for a more protected market (draft bill at US Senate proposed tariff doubling in December 21) 21: + 4% on US exports, 5% more fuel ethanol exports than Brazil (subsidized E9) Case of E85 imports by Sweden on lower tariff HS line Biodiesel market conflictual «Splash and Dash»: Use of US blender s tax credit since 29 to reexport B99 to the EU. Countervailing measures in March 29 stopped trade. Since 29, investigation on the origin and blending practices of some biodiesel imported to EU (dilution as B19 to escape tariff, reexport practices from Canada) May 21: Threat from palm oil producing countries to bring EU certification requirements to WTO Dispute Settlement Body 12
Biodiesel: new producers 2 18 16 14 12 1 8 6 4 2 Production of biodiesel from vegetable oil (million liters) - 27 542 Colza oil Sunflower oil Palm oil Soya oil 13 Sources: EurObserv ER, 21; USDA GAIN Reports 29, 21; USDA ERS Oil Crop Yearbook, EIA Energy Statistics
Biodiesel: new producers 2 18 16 14 12 1 8 6 4 2 Production of biodiesel from vegetable oil (million liters) - 29 746 Colza oil Sunflower oil Palm oil Soya oil 14 Sources: EurObserv ER, 21; USDA GAIN Reports 29, 21; USDA ERS Oil Crop Yearbook, EIA Energy Statistics
and many ongoing investments Land aquisition projects reported in the media 28-29 ~ 15 million ha of new land 15 Source: World Bank, 21
Conclusions Biofuel policies are public policies designed on consumption side with environmental objectives, which brings the question of environmental efficiency in production processes. Ethanol markets is dominant but highly subsidized and protected with little trade opportunities to the detriment of environmental efficiency. Biodiesel markets have emerged more recently, are more opened but induce high opportunity costs and significant environmental risks. As long as biofuels are incentivized for their supposed environmental performances, need to find a comprehensive design compatible with UNFCCC framework and WTO law for guarantying their potential benefits. 16
References Al-Riffai, P., Dimaranan, B. & Laborde, D. (21), Global Trade and Environmental Impact Study of the EU Biofuels Mandate, Final Report for the Directorate General for Trade of the European Commission, Technical report, International Food Policy Research Institute. EIA International Energy database, accessed 1/12/21 EPA (21), Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis, EPA-42-R-1-6, U.S. Environmental Protection Agency, Office of Transportation and Air Quality, Assessment and Standards Division. EurObserv ER (21). Biofuel barometer 21. European Council (29). Directive 29/3/Ec of the European Parliament and of The Council. 23 April 29 FAO (28), The State of Food and Agriculture, Food and Agriculture Organization of The United Nations, Roma. FAO PRODSTAT database, accessed 1/12/21 JEC (28) Well-to-Wheels Analysis of Future Automotive Fuels and Powertrains in the European Context. Version 3.. OECD (28), Biofuel Support Policies: an Economic Assessment, Organisation for Economic Co-operation and Development. Valin, H. and Laborde, D. (21) Modelling Indirect Land Use Effects Of Biofuels: Strengths and Limitations. Presented at the 14 th ICABR Conference, Ravello, Italy, June 21. UN Comtrade database, accessed 1/12/21 USDA GAIN Report (21). Netherlands-Germany EU-27: EU-27 Biofuels Annual: Annual Report 21, USDA Foreign Agricultural Service 17