POINTERS: Updates on Biodiesel Development and Production Forecast in the EU

In Europe, a few countries became interested in biofuels in the 1990s; however, the EU as a whole became interested in the subject much later – in 2001 – when it started drafting what would become the Biofuels Directive. The main concern at the time was the increased dependence of road transportation on imported oil from OPEC countries and the security risk attached to it. Biofuels used in low blends appeared as the only option to allow the continued use of existing vehicles. They also offered the advantage of reducing greenhouse gas (GHG) emissions, thus helping the EU to meet its Kyoto Protocol targets. The industry really took off with the introduction of favorable policies or fiscal incentives in the different Member States (the EU had 15 MS at that time). The main piece of legislation covering the use of biofuels in the EU has been the Biofuels Directive, adopted in May 2003 and was repealed by Jan. 1, 2012. The three pillars behind the promotion of biofuels in the EU were fuel security of supply, the reduction of GHG emissions and the creation of new markets for the agricultural sector as well as jobs. However, the now 27 Member States have varied biofuels strategies because of different local conditions and different priorities regarding the three biofuels pillars, mainly depending on whether they have a large farming community or the potential to grow biofuels feedstock and whether they can easily import biofuels or biofuels feedstock, whether their fossil fuel sources are reliable and whether sustainability is an important issue for their citizens.

The revision and introduction of the two main legal instruments affecting biofuels in the EU, the Fuel Quality Directive (FQD) and the Renewable Energy Directive (RED) led to their publication in the Official Journal of the EU on June 5, 2009. MS had until Dec. 5, 2010, to implement these directives, which form part of the Climate and Energy Package that represents an attempt by the EU to propose wide-ranging measures against climate change in the transportation and energy sectors. The RED specifically proposes a mandatory target of renewable energy in transportation of 10% by energy content by 2020. This mandate can be achieved using first-generation biofuels, advanced biofuels or renewable electricity as long as these biofuels meet specific GHG emission reduction targets and sustainability criteria. In addition, the RED introduces minimum GHG savings requirement ranging from 35% from implementation to 60% for new installations after 2017. The FQD introduces a minimum life-cycle GHG emission reduction of 6% by Dec. 31, 2020 by fuel suppliers on the fuel and energy they supply. On June 10, 2010, the Commission adopted a package consisting of two communications and a decision aimed at helping Member States and industry to implement the sustainability criteria within the RED. While the communications are not legally binding, they provide guidelines and the decision is binding.

The road transportation sector in Europe is mainly diesel driven (66% in 2011) and this trend is expected to continue into 2015, when the share of diesel could reach nearly 70%, then 72% into 2020. As the diesel refining capacity in Europe cannot meet this demand, Europe relies on diesel imports and must export its overproduction of gasoline. Even if the energy security of supply is no longer seen as the main driver behind the biofuels policy, it still makes sense to look for diesel substitutes such as first- and second-generation biodiesel.

On the biofuels market side, Europe remains the world’s largest biodiesel producer and consumer, even though the market has changed from being dominated by the three top producers until 2008, to being more equilibrated between several Member States. However, after several years of impressive capacity growth, the biodiesel capacity only grew by 6% between 2010 and 2011. In addition, the European Biodiesel Board (EBB) reports that facilities have been working well below capacity. EU producers are struggling with high feedstock prices and competition with cheaper imports. Plants have been shut and sometimes restarted when market conditions improved. It appears that plants located in ports, with good access to imported feedstock and export options, are faring better than land-locked facilities. The 2011 Biofuels Barometer estimated that biodiesel consumption only grew by 11% between 2009 and 2010. Hart Energy is of the opinion that the forecasts in the Member States national renewable energy action plans (NAPs), submitted under the RED, overestimate the share of biofuels in road transportation, as well as the share that might be imported. However, they do not take into consideration uses of biodiesel in off-road and non transport applications. As a result, the overall amount of biofuels supply and demand forecasted in the NAPs seems disconnected from the market reality. Overall they give a share of 9.4% biofuels in transport in 2020, equivalent to 10.3% by energy content with the double counting of Article 21.2 biofuels, but biofuels would need an average of 64% GHG saving to meet the 6% GHG saving mandate of the FQD in 2020. In addition, the amount of biofuels consumption projected by the Member States leads to very high incorporation shares of biofuels, higher than the market can reasonably be expected to cope with by 2020, such as 13 vol% to 16 vol% of biodiesel into diesel, considering that current blending limit for FAME biodiesel is 7 vol% unless specified at the pump. The use of biodiesel in non-road application as well as the consumption of high blends can increase the consumption beyond low blending levels, but some values are still beyond what Hart Energy believes to be plausible scenarios. The situation varies at the Member State level, as some are more advanced than others, but the forecasts tend to overstate either consumption or imports or both in most cases as discussed in the Member States’ sections. Hart Energy has reviewed the NAPs demand projections and proposed other figures for 2015 and 2020. Figure 1 shows the forecast of biodiesel supply and demand in the EU 27 from the NAPs and Hart Energy.

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Questions & Answers (4) :

Maelle Soares Pinto

11 years ago

Dear Manoj Jha, Thank you for your comments. At Hart Energy we are also of the opinion that several member states, in particular those most affected by the financial crisis, will find it difficult to support funding of more expensive energy sources. However, in some cases, these countries have a large biofuels industry and we have observed steps to support that national industry (like in Spain). Overall, Hart Energy expects that the 2020 mandates set by the Renewable Energy Directive and Fuel Quality Directive will not be met. I cannot say whether that will ease the pressure on food markets. Other factors need to be taken into consideration such as sustainability of feedstocks as these are expected to impact the access to EU market of some of the feedstocks.. I hope this answer is of use to you. Best regards, Maelle Soares Pinto

Manoj Jha

11 years ago

Ms. Pinto- EU Slowdown & certain disintegration soon , nearly Bankrupt Governments will be able to continue with GHG mandate? I feel rest of the world is paying high prices for food due to such mandate!

Maelle Soares Pinto

11 years ago

Dear Idris Gbenga, I am not sure what you mean by distribution marketing. I you refer to distribution and marketing of palm oil, then I suggest you contact the palm oil council or board directly and not Hart Energy. Best regards, Maelle Soares Pinto

Idris Gbenga

11 years ago

How can i perticipate in Distribution marketing