New report supports incentives that further the sustainability of biofuels

New report supports incentives that further the sustainability of biofuels

Ernst & Young

A report by Ernst & Young published on 5 October 2011 indicates that indirect land use change (ILUC) risks can be mitigated by incentives that encourage existing and additional sustainable practices in biofuels production, as well as other sectors that use agricultural commodities.

The report, commissioned by a diverse consortium of industry and NGOs, supports a new policy option that incentivises land use change mitigation practices and supports best practice and behavioural change in the production of biofuels.

“In carrying out this study, we engaged with biofuels producers across all of the main production regions for the European market,’’ said Andrew Britton, a Senior Manager in Ernst & Young’s Climate Change and Sustainability Services practice. ‘‘We found that producers may be willing to adopt further sustainability requirements for biofuels, but only if the financial value gained by doing so outweighed the costs of adopting the requirements. This study concludes that an incentive-based mechanism is more likely to succeed in reducing ILUC risks than an approach that simply makes the European biofuels market less attractive to producers of commodity crops.”

The policy option proposed by the consortium differs from the four ILUC mitigation measures currently under consideration by the European Commission, but it does provide opportunities to combine incentives with the more punitive approaches. This proposal could be implemented by extending the application of carbon incentives, already established by the Directive for degraded land, to qualifying mitigation measures identified in the report.

ILUC mitigation practices identified by Ernst & Young include the development of advanced generation biofuels, improvements to crop yields on existing agricultural land, the use of co-products for animal feed purposes, and crop production on abandoned lands. The report recommends that incentivizing these additional sustainability practices would reduce the risk of biofuels production indirectly contributing to the conversion of new land for agricultural production that could result in increased carbon emissions. Importantly, the incentive would only be available to producers who implement verifiable ILUC mitigation practices.

The proposed policy would require no public funding and, if built into EU policy, would improve the sustainability of biofuels production and increase investor confidence in Europe as the leader in sustainable biofuels.

Due to speak at the launch of the report, Utrecht University Professor, André Faaij, a Convening Lead Author for the Intergovernmental Panel on Climate Change said:

“There is solid scientific evidence that substantial amounts of biomass – potentially up to a third of future global energy demand – can be supplied by residues, using marginal and degraded lands and by more effective farming and livestock management. Bioenergy options can provide a key lever for sustainable development of the agricultural sector and rural economies instead of causing conflict with food supplies and land. ILUC can thus be avoided by a proactive strategy, which is much more desirable than introducing ILUC factors to correct imperfect governance of land use and agriculture”.

On the consortium and the Ernst & Young study

Earlier this year, a diverse consortium of industry and NGO partners commissioned Ernst & Young to undertake an independent study into the effectiveness of the European Commission’s four policy options for ILUC. The consortium also asked Ernst & Young to investigate the potential for introducing ILUC mitigation practices in the context of EU policy.

The consortium consists of the European Renewable Ethanol Association (ePURE), the International Union for Conservation of Nature (IUCN), Neste Oil, Partners for Euro-African Green Energy (PANGEA), Riverstone Holdings LLC and Shell.

The consortium was brought together in its shared belief that a proactive, constructive policy response is needed to address EU concerns about ILUC associated with biofuels production.

The study has aimed to establish the facts and clarity of context around ILUC by building on existing literature. It has also investigated issues concerning implementation of practical ILUC mitigation measures and their effectiveness in biofuels production.

The EU’s four policy options to address Indirect Land-Use Change (ILUC)

The European Commission is considering 4 options to address indirect land use change, namely:

- Take no action for the time being, while continuing to monitor scientific developments related to ILUC emissions;

- Increase the minimum greenhouse gas saving threshold that biofuels are required to meet to count towards the 2020 biofuel target under the Renewable Energy Directive;

- Introduce additional sustainability requirements on certain categories of biofuels;

- Attribute a quantity of greenhouse gas emissions to biofuels reflecting the estimated land-use impact.

The European Commission is expected to table a proposal to address ILUC this autumn.

The full report can be found here.

Information from the European Commission on biofuels and indirect land use change can be found here.