When all carbon emissions are taken into account, feedstocks for “renewable” liquid automobile fuels are far from equal. Palm oil and some other crops used in biodiesel are more carbon-intensive to produce and consume than oil, according to some researchers. Meanwhile, the corn or sugar normally used for petrol-substitute ethanol appears to offer genuine carbon savings.

For Europe, these are crucial calculations. Unlike the U.S., which also backs biofuels for energy security reasons, Europe’s rationale for encouraging biofuel use is purely environmental, said European Commission (EC) energy spokeswoman Marlene Holzner. There is “no consideration of energy self-sufficiency” in this policy, she said. So, by fully accounting for carbon emissions, Europe could end up undermining its current biofuels policy.

Diesel use is still rising relative to petrol in Europe. The International Energy Agency (IEA) expects diesel’s share in oil product demand to grow from 42 per cent in 2011 to 44 per cent in 2016. In Europe, biodiesel is expected to meet two thirds of biofuel consumption by 2020. Companies such as Neste, Cargill, Sofiprotéol and Abengoa have invested about €13 billion in European biodiesel production capacity, which could almost already meet EU 2020 targets. But if biodiesel from feedstocks with a high carbon footprint is excluded from EU targets, much of this investment would be wasted, and increased bioethanol production and imports would be unlikely to fully make up the difference.

Europe is now working to introduce new rules that fully quantify biofuel emissions, replacing estimates based solely on carbon emissions directly linked to the biofuel crop itself, such as fuel for harvesting and nitrogen-based fertiliser. To develop these regulations, the EC is attempting to quantify “indirect land use change” (ILUC) emissions, which take account of the carbon impact of crops displaced by the biofuel feedstock.

While ILUCs are proving to be a “very complicated” issue – with “no plan” and “no date” set for introducing rules – Holzner contradicts widespread reports of disagreement between the EU’s energy and climate departments over fundamental principles. The energy department had been reported to oppose ILUC limits because biofuels were making an important contribution to European energy supply and security, while the environment department was more concerned over their environmental impact.

Climate spokesman Isaac Valero-Ladron also claimed that there is “a strong consensus on the need to act and address ILUC”. But the new rules must accommodate not only considerations about energy but the agriculture department’s concerns over European biodiesel and the trade department’s concerns over imported biodiesel. The EC is now preparing a legislative proposal on ILUC that will be accompanied by an impact assessment identifying those biofuels considered heaviest in emissions, said Valero-Ladron.

The current European program excludes biofuels that reduce carbon emissions by less than 35 per cent from their petroleum equivalent. Factoring in ILUC estimates is expected to push several key biodiesel feedstocks well beyond this threshold. European biodiesel production is currently dominated by palm, soya and rapeseed oil. But these feedstocks – while the cheapest to produce – are also the least energy-efficient. Rapeseed is the biggest feedstock within Europe, with production largely centered in France and Germany.

Three alternative approaches are being considered, said Holzner. The first would exclude ILUCs but require all biofuels to achieve up to a 60 per cent emission saving on conventional fuels by 2016, which would probably allow Europe to continue producing rapeseed and other biofuels but could halt palm and soya imports. The second option would be to include ILUC estimates, which biofuel producers and industry bodies fear would be very damaging for their sector. The third option is a combination of the two, which would favour bioethanol production but could run up against Europe’s reliance on diesel.

Much palm oil is already ineligible for conversion to European biodiesel because it fails to meet sustainability criteria outlined in legislation introduced in 2009-2011, said Holzner. To qualify, crops must prove they are harvested from agricultural rather than recently deforested land. But ILUC, as a much more complex and subtle assessment of secondary impacts such as displaced agricultural production, is very difficult to quantify and agree on, she said.

New rules would also have to be “WTO compatible”, she added. Canada’s former ambassador to the World Trade Organization (WTO), John Weekes, has already said the EU is likely to face WTO challenges over foreign energy source discrimination. He describes the moves as a trade barrier designed to keep competing biofuel feedstocks out of Europe. Brazil, Indonesia, Malaysia and the US have all raised concerns at the WTO over EU trade rules on biofuel imports. But Holzner describes reported criticisms from WTO partners as premature because “nothing has been tabled yet”.

A challenge to EU renewable targets

Holzner insists that any changes would not endanger Europe’s renewable fuel targets: “If we look at the biofuel mix in 2020, the greenhouse gas emission savings are estimated to be 21 per cent. This is the case even if no action is taken to mitigate estimated ILUC impacts,” she said in an email. “The overall impact of biofuels is to reduce carbon emissions.” Any change in the mix will not alter the underlying objectives, she said.

But Daniel Kluge of the German Renewables Federation (BEE) said ILUC assessments could threaten the EU’s renewable fuels carbon reduction targets. The European Biodiesel Board claims ILUC is scientifically unproven and ILUC emissions are greatly overestimated. Producers claim uncertainty over assumptions for modelling ILUC emissions means immediate action cannot be justified. Specific rules should be delayed in favour of an indirect approach, in their view. “The ILUC methodology is not solid,” said Kluge.

Academics have also challenged the EU’s calculations of emissions for palm oil and other oilseeds. Gernot Pehnelt of the Friedrich Schiller University of Jena, Germany, has recently produced research showing systemic differences between EU estimates and those of other scientific studies.

For the BEE, ILUC issues should be treated as a “local problem more associated with land development regulations”, said Kluge. Biofuel producers have been “left in limbo” by EU policymakers’ inability to make any progress at a meeting in early May, he said. After more than a year of infighting within the European Commission, the bloc’s 27 commissioners had been expected to choose between the three main policy options at the meeting, but failed to do so.

Meanwhile, in defense of what they see as their cleaner green fuels, European bioethanol producers have asked the EU to introduce ILUC targets so the market can distinguish between “good and bad biofuel pathways”. This would completely overhaul the industry towards producing bioethanol or advanced biodiesel, say producers. Advanced or second-generation biofuels made from “woody” cellulosic materials such as tree bark and leaves – which do not compete with food production, and so have less ILUC impact – are in their infancy and very costly, but could be about to turn a corner.

Biofuels have been heavily promoted in the EU as the most straightforward way to reduce greenhouse gas emissions from transport. Europe’s Renewable Directive requires countries to achieve a 10 per cent share of sustainable energy in road transport by 2020, mostly from biofuels along with a 6 per cent reduction in the carbon content of transport fuels by the same date. While environmental campaigners estimate that each year biofuels cost Europe’s taxpayers €18 billion, which could be better spent on promoting electric vehicles and public transport, other innovative technologies are some way from making a major impact. Biofuels are also perfectly compatible with combustion engines and much of the existing fuels infrastructure.

Key investors such as BP believe existing infrastructure will give biofuels the edge over electric vehicles and gaseous fuels. BP has invested billions of dollars in developing biofuels – mainly sugar-based ethanol in South America, although it is poised to build its first cellulosic biofuels plant. BP is alone among major oil companies in supporting the US’s new renewable fuel standard (RFS2). Philip New, BP’s head of biofuels, recently contrasted U.S. renewable fuels policy with the “EU’s confused state of regulatory support”.

Some energy and trade interests also argue for biofuels to be promoted in Europe on strategic and security grounds, as they are in the U.S. The EU relies heavily on oil and natural gas imports and its dependence is set to grow. The variety and distribution of biofuel feedstocks makes them far less vulnerable to disruption than oil supplies. What’s more, biofuel prices are not closely linked to the volatile and highly unpredictable price of oil.

A missing element in the debate among lawmakers on both sides of the Atlantic is the impact of biofuels on food prices and consumers. Many campaigners claim renewable fuel production has helped push up prices for many agricultural commodities, with expansion in feedstocks such as rapeseed or corn tightening other crop markets through competition for land. But, especially in the U.S., rising prices are widely expected to quickly expand food supply, while concern is high over energy prices and security, which also affect food prices.

U.S. market presses forward

President Obama is targeting an “all of the above” energy policy, which means diversifying supply – including into biofuels – to reduce energy shocks and price volatility as well as to cut carbon dioxide emissions. Petrol dominates the US auto market, and most US biofuel comes from corn-based ethanol, a petrol replacement with a relatively low carbon footprint. US regulators have already excluded palm oil-derived biodiesel from the country’s renewable fuels program.

In the 2011 season, ethanol production consumed 40 per cent of the U.S. corn crop, overtaking consumption by U.S. livestock and poultry for the first time. Before the RFS was introduced in 2005, 53.4 per cent of the crop went to livestock and poultry and just 12.5 per cent to ethanol.

The renewable fuel standard (RFS) guarantees biofuels a share of the motor fuel market of 57 billion liters in 2012, rising to 68 billion liters by 2015. The U.S. taxes imported ethanol – mainly Brazilian sugar-based production – and subsidizes its own production. Cellulosic ethanol is intended to supply 3 per cent of production, but so far provides only 0.1 per cent. Companies must buy credits if they cannot source enough cellulosic ethanol, even if the fuel may not be available. Unless production of advanced biofuels increases, the shortfall will widen. Under the 2007 law, the U.S. must use 167 billion liters of renewable fuels per year by 2022, with cellulosic biofuel making up 73 billion liters. But a National Academy of Sciences report published in 2011 concluded that this target cannot be met without new innovative technologies “that unexpectedly improve the cellulosic biofuels production process”.

Huge government incentives may yet make this happen, and there are signs the tide is turning. Several cellulosic biofuel plants are about to come onstream in the U.S. Honeywell claims a Rapid Thermal Process (RTP) technology it is poised to introduce can produce fuel at significant scale at a cost equivalent to a crude oil price of $45 per barrel of oil equivalent.

As BP noted, using existing infrastructure provides a critical cost advantage. If refiners can produce advanced biofuels themselves with existing equipment, it could bring billion-liter-scale projects, as well as operational synergy with existing oil infrastructure. Experts suggest such technologies might be operational by 2015-2016, as U.S. cellulosic biofuels mandates start to expand dramatically.

In the meantime, Europe’s decision-makers seem locked in a frustrating and complex struggle to set up ILUC measures that satisfy environmentalists, avoid international trade disputes, keep farmers happy and protect existing investments in biodiesel capacity.