…environmental economics and the implications of environmental policy

Archive for the ‘EU’ tag

Biofuel, growing a climate policy mess

with 15 comments

As usual, good ideas hatched in capital cities all over the world were not well thought out and perhaps a tad too rushed. While biofuels have a place is climate policy, the zeal with which renewable fuel standards are being rolled out is growing into one big mess. A leaked paper from the EU’s own research folks says much:

The unpublished working paper by the Joint Research Centre, the commission’s in-house scientific body, says current EU proposals will cost the taxpayer 33-65 bln eur between now and 2020.
The cost-benefit study looks at whether using biofuels reduces greenhouse gas emissions, improves security of supply and creates jobs. It delivers an unenthusiastic opinion on all three counts.
‘What the cost-benefit analysis shows is that there are better ways to achieve greenhouse gas savings and security of supply enhancements than to produce biofuels,’ the report says.
‘The costs of EU biofuels outweigh the benefits,’ the researchers stated.

The big concern is of course the scale of it all. Growing the share of renewable fuels from very small to a large share in just 13 years places massive distortions in all kinds of markets – agriculture, food, refining, distribution (transport, storage and blending) and of course end use. Importantly, trade distortions seem inevitable. Simply, the large quantities required for compliance of say a 5% ethanol content will require imports of international feedstock. And those folks internationally are gearing up for it (see here).

But, one of the main policy thrusts of biofuels is of course getting more cash into farmers pockets, and thus the coming rise in biofuel protectionism. This is already happening (see here):

Malaysia, along with Indonesia, will be closely monitoring developments within the European Union (EU) regarding a draft law that proposes to ban imports of certain biofuels.

While the trade folks understand the implications of this stuff better than I, I can’t help but think the rising protectionism will lead to more problems. How does one label the product, differentiate it and enforce the ban? And what about trade law and protectionism, would there not be challenges? And how about the cost, would not intentionally acquired feedstock lower overall costs? Finally, while concern for degrading ecosystems is a sound basis for trade discrimination, it also seems a bit patronizing given western cropping practices.

So, while lots of folks hold out for the biofuel promise, it seems the worldwide policy enthusiasm has blight.

Written by Dave Sawyer

January 22nd, 2008 at 5:26 am