EU Sets Limits on Crop-based Biofuels, Brazilian Ethanol Picks Up US Production Slack

In a major policy shift, the European Union (EU) plans to limit crop-based biofuels because of rising food prices worldwide.

International pressure has been growing for governments to reduce farmland set aside for ethanol and advanced biofuels because of extensive droughts this summer that have led to record high global grain and other food prices. 

Europe’s new rules limit crop-based biofuels to 5% of transport fuel through 2020, about the same as they are now.

Previously, the EU required biofuels to rise to 10% of transport fuels by 2020, and biofuels made from grains, sugar and vegetable oils were expected to account for the majority of that.

The policy change is a boon for advanced biofuels made from agricultural waste, non-edible grasses, and other non-food feedstocks such as algae.

"The Commission’s message for post-2020 is that our clear preference is biofuels produced from non-feed feedstocks or agricultural residues such as straw," says the European Commission (EC). "These new types of biofuels are not in competition with food, nor do they require additional land. We are pushing biofuels that help us cutting substantial CO2-emissions, do not compete with food and are sustainable and green at the same time."

EU biofuels makers are critical of the new policy, saying the advanced biofuels industry is ill-equipped to handle the increased demand.

"Who is investing in second and third generation biofuels? Us – we are paying for that. But how can we invest in developing second generation fuels if we are forced to close down first generation production? We need to be realistic," Jean-Philippe Puig, CEO of French oilseed group Sofiproteol which owns the EU’s largest biodiesel producer, told Reuters.

"I am not convinced that the second generation will be ready in time for 2020, it will take a bit more time and will require more investment than for the first generation. Probably it will only be ready between 2020 and 2025," says Puig.

Record high worldwide prices for grains, corn and soybeans, have prompted international calls for changes to the EU and US biofuels rules among those critical of policies that prioritize fuel over food.

Oxfam has been particularly vocal. It estimates the land used to keep European cars running for one year could cultivate enough wheat and maize to feed 127 million people.

"Biofuels were meant to make transport greener, but European governments are pouring consumers’ money down the drain, whilst depriving millions of people of food, land and water," says Natalia, Alonso, head of the Oxfam EU office.

Brazil Benefits from US Policies

The EU’s action stands in contrast with US silence on this issue. Despite a prolonged drought and accompanying spike in food prices, there is no plan to change US ethanol policy, which dedicates about 40% of the US corn crop to produce biofuels. US corn prices recently reached record highs of more than $8 per bushel.

The US EPA issued its final rule for 2013 establishing 1.28 billion gallons as next year’s biomass-based diesel volume requirement under the Renewable Fuel Standard, up from 1 billion gallons in 2012. That’s about half of what the original law calls for.

"The market is already responding to the reality of this drought," US Agriculture Secretary Tom Vilsack told The New York Times, pointing to a recent decline in ethanol production. US fuel companies are required to use at least 9% ethanol in their supplies annually, or about 12 billion gallons.

As US crop forecasts shrink, ethanol from Brazil will benefit – thanks to two developments that happened on January 1, 2012, that make this more economically feasible. That’s when a tariff of 54 cents per gallon on ethanol imports expired, as did subsidies of 45 cents per gallon given to US blenders.

Brazilian ethanol is rushing back into the US because it is the only industry that has the scale to meet the US advanced biofuels mandate, reports The Chicago Tribune

The country could boost ethanol exports this season by 38% to 675 million gallons, according to estimates from Brazil’s sugarcane industry association Unica. Approximately 500 million of that amount is intended for the US.

For more on the growth of Brazil’s ethanol industry:

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