EU Biofuels Annual 2012

An Expert's View about Energy in Germany

Posted on: 29 Jul 2012

This report presents the situation and outlook for biofuels in the EU. EU Member States (MS) are mandated to reach a minimum of 10 percent for renewable energy consumed in transport in 2020.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution 6/25/2012 Date: GAIN Report Number: NL2020 EU-27 Biofuels Annual EU Biofuels Annual 2012 Approved By: Mary Ellen Smith Prepared By: Bob Flach, Karin Bendz and Sabine Lieberz Report Highlights: EU Member States (MS) are mandated to reach a minimum of 10 percent for renewable energy consumed in transport in 2020. In 2011, about a fifth of the domestic use of biofuels was imported from outside the EU. Despite a reclassification of bioethanol blends to a higher tariff rate, 2012 and 2013 imports from the United States are anticipated to remain at the same levels as last year, around 1 billion liters. Starting in the fourth quarter of 2012 and in 2013, overall EU imports of biodiesel are expected to decrease as a result of enforcement of the Spanish quota system, which only accepts biodiesel produced in the EU. The European Commission (EC) expects heat and power production from biomass to play an important role in meeting the 20 percent target for renewable energy use by 2020 and in the future reduction of CO emissions in Europe. A major part of the biomass used is forecast to be forestry products. In 2011, 2 U.S. wood pellets exports to the EU passed the 1 MMT. Post: The Hague Executive Summary Policy and Programs The regulations which impact the EU biofuels market are the Biofuels Directive (2003/30), the EU Climate and Energy Package and the Fuel Quality Directive (FQD) (2009/30). The Package was adopted as a white paper by the European Council on April 6, 2009 (0147/2009). The Package includes the “20/20/20” mandatory goals for 2020, one of which is a 20 percent share for renewable energy in the EU total energy mix. Part of this 20 percent share is a 10 percent minimum target for renewable energy consumed in transport to be achieved by all Member States (MS). Biofuels have to meet certain criteria to count against the 10 percent goal. In the Renewable Energy Directive (RED), specific sustainability requirements are laid out. These include minimum GHG (greenhouse gas) emissions reductions, land use and environmental criteria as well as economic and social criteria, and adherence to International Labor Organization conventions. The European Commission (EC) is reportedly working on updating the default values on GHG emissions in the RED. The RED also requires the EC to determine whether there is a need to establish sustainability criteria for solid and gaseous biomass. Conventional and Advanced Biofuels Biodiesel is the main biofuel for transport used in the EU and accounted for about 70 percent of the biofuels market on volume basis in 2011. Bioethanol had a 28 percent market share. In 2012, the share of advanced biofuels, mainly hydrotreated vegetable oils, may increase to over 5 percent of the total use of biofuels. Between 2006 and 2008, the EU MS’ mandates for blending and the relative high crude oil prices spurred an increase in the domestic use and production of biofuels, creating a demand for imports. Since 2007, however, competitive imports of both bioethanol and biodiesel have been driving domestic producer margins down. Since 2010, bioethanol imports from Brazil were replaced by competitive imports from the United States. As the majority of these imports avoided the high EU import tariffs, the price deviation between the world and protected EU market disappeared, and as a result, EU domestic prices for bioethanol plummeted. Despite a reclassification of these blends to the higher tariff rate, imports from the United States are anticipated to remain at the same levels this year, 1 around 1 billion liters. This forecast is mainly based on the fact that EU domestic production is insufficient to fulfill the growing regulated domestic demand. Since the enforcement of countervailing and anti-dumping duties on imports of biodiesel from the United States in March 2009, U.S. exports have been replaced by mainly biodiesel from Argentina and Indonesia. Starting in the fourth quarter of 2012 and in 2013, however, overall EU imports of biodiesel are expected to decrease as a result of enforcement of the Spanish quota system, which only accepts biodiesel produced in the EU. Although it would be agronomically possible to grow all the feedstock needed to reach the policy goals domestically, the EC believes that 30 percent of the feedstock and biofuels will have to be imported to reduce price pressures on EU feedstock. The required feedstock for the anticipated biofuels production in 2012 is estimated at about 10.1 MMT of cereals, about 10.3 MMT of sugar beets, and about 9.7 MMT of vegetable oils and animal fats. In 2012, the production of byproducts from bioethanol and biodiesel production is forecast to reach 3.7 MMT (theoretical production of DDG) and about 14 MMT of oil meals (some of which is produced outside of the EU), respectively. Biomass for heat and power The European Commission (EC) expects heat and power production from biomass to play an important role in meeting the 20 percent target for renewable energy use by 2020 and in the future reduction of CO emissions in Europe. A major 2 part of the biomass used is forecast to be forestry products. Another important part is projected to be biomass converted in biogas. Wood Pellets The EU is the world’s largest wood pellets market, with a consumption of about 12 MMT of pellets in 2011. Experts are expecting the market to increase to 80 MMT in 2020. Since 2008, the demand for pellets has significantly outpaced domestic production in Europe. This has resulted in increased imports from the United States. In 2011, U.S. wood pellets exports to the EU passed the 1 MMT, which is approximately thirty percent of the EU import share, and represents a value of US$ 193 million. Industry sources expect this trade flow to increase to over 5 MMT in 2015. Third country imports could, however, be affected by the implementation sustainability requirements demanded by the Renewable Energy Directive (RED). Biogas The biogas sector is very diverse across Europe. Depending on national priorities, i.e. whether biogas production is primarily seen as a means of waste management, as a means of generating renewable energy, or a combination of the two, countries have structured their financial incentives to favor different feedstocks. According to Eurostat data, Germany is with 86 percent of EU production by far the largest producer of biogas from agricultural feedstock, while the UK leads the biogas production from landfill gas with 50 percent of EU production. 2 TABLE OF CONTENT Executive Summary………………………………………………………………….1 Introduction……………………………………………………………………….….4 Policy and Programs…………………………………………………………………5 Conventional Bioethanol………………………………………………………….….11 Conventional Biodiesel…………………………………………………………….…19 Advanced Biofuels……………………………………………………………………24 Biomass for Heat and Power………………………………………………………...27 Notes on Statistical Data……………………………………………………………..32 3 Introduction Disclaimer: This report presents the situation and outlook for biofuels in the EU. This report presents the views of the authors and does not reflect the official views of the U.S. Department of Agriculture (USDA). The data are not official USDA data. Official government statistics on biofuels are not available in many instances. This report is based on analytical assessments, not official data. This report was a group effort of the following FAS analysts: Karin Bendz of USEU/FAS Brussels Stefano Baldi of FAS/Rome covering Italy Ornella Bettini of FAS/Rome covering Greece Mila Boshnakova of FAS/Sofia covering Bulgaria Bettina Dahlbacka of FAS/Stockholm covering Sweden, Denmark and Finland Monica Dobrescu of FAS/Bucharest covering Romania Bob Flach of FAS/The Hague covering the Benelux Countries Marta Guerrero of FAS/Madrid covering Spain Marie-Cecile Henard of FAS/Paris covering France overing Poland and the Baltic States Roswitha Krautgartner of FAS/Vienna covering Austria and Slovenia Sabine Lieberz of FAS/Berlin covering Germany Diogo Machado of FAS/Madrid covering Portugal Jana Mikulasova of FAS/Prague covering the Czech Republic and Slovakia Ferenc Nemes of FAS/Budapest covering Hungary Jennifer Wilson of FAS/London covering the UK and Ireland The chapters were coordinated by: Executive Summary by Bob Flach Policy and Programs by Karin Bendz Conventional Bioethanol by Bob Flach Conventional Biodiesel by Sabine Lieberz Advanced Biofuels by Bob Flach Biomass for Heat & Power by Bob Flach (wood pellets) and Sabine Lieberz (biogas) 4 Policy and Programs Transport Fuel Consumption (million liters) Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Conv. Biofuels 8,409 11,059 14,382 17,020 18,459 19,273 19,668 20,024 -Bioethanol 1,725 2,375 3,504 4,598 5,117 5,496 5,843 6,224 -Biodiesel 5,480 7,730 10,400 12,270 13,270 13,750 13,800 13,775 -PVO 1,204 954 478 152 72 27 25 25 a Adv. Biofuels 0.15 0.15 5 195 390 390 1,300 1,300 a -Cell. Bioethanol 0.15 0.15 5 5 10 10 10 10 -Cell. Biodiesel 0 0 0 0 0 0 0 0 -Drop-in Gasoline 0 0 0 0 0 0 0 0 a -HVO Fuels 0 0 0 190 380 380 1,290 1,290 -Drop-in Diesel 0 0 0 0 0 0 0 0 -Drop-in Jet Fuels 0 0 0 0 0 0 0 0 Total Biofuels 8,409 11,059 14,387 17,215 18,849 19,663 20,968 21,324 Gasoline 1,725 2,375 3,509 4,603 5,127 5,506 5,853 6,234 Diesel 6,684 8,684 10,878 12,422 13,342 13,777 13,825 13,800 Bio Jet Fuels 0 0 0 0 0 0 0 0 Tot. Fossil Fuels 418,326 422,557 414,817 399,190 394,418 396,289 397,313 398,361 Gasoline 140,244 135,195 128,130 123,231 115,881 115,649 115,417 115,187 Diesel 215,192 222,597 220,809 215,159 218,416 220,600 222,806 225,034 Jet Fuels 62,890 64,765 65,878 60,800 60,121 60,040 59,090 58,140 Total Fuel Market Gasoline Market 141,969 137,570 131,639 127,834 121,008 121,155 121,270 121,421 Diesel Market 221,876 231,281 231,687 227,581 231,758 234,377 236,631 238,834 Jet Fuel Market 62,890 64,765 65,878 60,800 60,121 60,040 59,090 58,140 Biofuel Blend (Volume basis) Gasoline Market 1.2 1.7 2.7 3.6 4.2 4.5 4.8 5.1 Diesel Market 3.0 3.8 4.7 5.5 5.8 5.9 5.8 5.8 Jet Fuel Market 0 0 0 0 0 0 0 0 Goal (*) 2.75% 3.50% 4.25% 5.00% 5.75% - - (a) Advanced biofuel capacity. Transport Fuel Projection (million liters) Calendar Year 2013 2014 2015 2016 2017 2018 2019 2020 Gasoline 121,421 121,178 120,936 120,694 120,453 120,212 119,971 119,731 Diesel 238,834 241,222 243,635 246,071 248,532 251,017 253,527 256,062 Jet Fuel 58,140 59,303 60,489 61,699 62,933 64,191 65,475 66,785 Total 418,395 421,703 425060 428,464 431,918 435,420 438,973 442,578 Source Eurostat and EC Publication “EU Energy Trends to 2030”. The Renewable Energy Directive The EU Energy and Climate Change Package (CCP) was adopted by the European Council on April 6, 2009. The Renewable Energy Directive (RED), which is part of this package, entered into force on June 25, 2009, and had to be transposed into national legislation in the Member States (MS) by December 5, 2010. MS were also required to submit National Renewable Energy Action Plans (NREAP) by June 30, 2010. The adoption and requirement for the implementation of the Directive did not give enough time for either the Member States or the Commission to prepare for the implementation. These tight deadlines created many difficulties for everyone involved. 5 The EU Energy and Climate Change Package include the “20/20/20” goals for 2020: • A 20 percent reduction in green house gas (GHG) emissions compared to 1990. • A 20 percent improvement in energy efficiency compared to forecasts for 2020. • A 20 percent share for renewable energy in the EU total energy mix. Part of this 20 percent share is a 10 percent minimum target for renewable energy consumed in transport to be achieved by all MS. The goal for 20 percent renewable energy in total energy consumption is an overall EU goal. The RED sets different targets for different MS within this overall target, based on each MS’ capacity. Therefore, some MS will have to reach much higher targets than the 20 percent renewable energy by 2020, whereas other MS will have much lower targets. Sweden, for example, will have to reach 49 percent, while the target for Malta is only 10 percent. The targets for the four largest economies of Europe: Germany, France, UK, and Italy, are 18, 23, 15, and 17 percent respectively. These targets are set by the European Commission (EC) depending on the current situation and potential for growth in different MS. In contrast, the 10 percent target for renewable energy in transport is obligatory for all MS. The Commission hopes that a 10 percent target in transport for all MS will alleviate concerns referred to in the CCP that this sector is projected to account for most of the growth in energy consumption and thus requires more discipline. The latest official number for the use of biofuel was 4.2 percent (volume basis) in 2009. There is no official number for 2010, but estimates are between 4.5-5 Percent. Biofuels have to meet certain sustainability criteria to be taken into account for the 10 percent goal: • They must meet the sustainability criteria outlined below, including reducing GHG emissions by at least 35 percent compared to fossil fuels. From 2017, the reduction has to be 50 percent, and at least 60 percent for new installations. • Second-generation biofuels will receive double credit. This means that biofuels made out of ligno-cellulosic, non-food cellulosic, waste and residue materials will count double towards the goal. Calculations are made on an energy basis. • Renewable electricity consumed by cars will be counted by a factor of 2.5 and will therefore help countries achieve targets faster. The Fuel Quality Directive (FQD) is a Directive that complements the RED and mirrors some of the RED’s content such as the sustainability criteria. The FQD and CEN technical standards regulate the properties of biofuels and fuel additives in addition to the amount of these products that can be blended into fossil fuel. A key requirement of the FQD is that all fuel suppliers (oil companies) must meet a 6 percent cut over 2010 levels of GHG emissions by 2020 across all fuel categories supplied to the market. This is designed to be consistent with the 10 percent use of biofuels and will tend to move demand toward biofuels with higher GHG savings. In addition, the FQD limited ethanol blends to 10 percent or less when ethanol is used as an oxygenate. Thus a blend wall is created which risks future growth in ethanol use in certain countries beginning at some future date. The 2009 FQD supports a duel grade system of E5 for older vehicles and E10 for newer vehicles. Looking at the overall EU market, there is no blend wall constraint for the next few years. This duel grade system permits continued growth in ethanol use even though the overall gasoline market is shrinking. For biodiesel, a CEN technical standard for B7 already exists which permits the EU biodiesel use growth rate to exceed the growth in EU diesel demand for the next few years. There is work in progress to set a higher blend limit for heavy and even light-duty trucks. Fuel specifications for biodiesel place limits on the use of palm oil and soy oil as feedstock for biodiesel. Transposition of the RED By June 2012, only 20 MS had notified the EC of full transposition and the remaining seven, mainly smaller countries, had notified partial transposition. The Commission is currently examining the sustainability criteria of each of the MS’ legislation. Commission officials assume that those MS with only partial transposition of the RED have included sustainability criteria. The Commission is also assessing whether the MS’ that have notified full transposition have done so correctly. The possibility for certain biofuels of receiving double credit based on what feedstock are being used have so far been introduced 6 in nine Member States: Austria, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, and the U.K. The use of double counting biofuels is limited but growing, in particular the consumption of biofuels produced from waste fats (see Biodiesel Chapter). Sustainability Criteria Biofuels must comply with the sustainability criteria provided in Article 17 of the RED to be eligible for financial support and to count towards the target. These sustainability criteria have to be met by all biofuels whether produced within the EU or imported. The sustainability criteria include reaching a minimum GHG emission saving; not being produced from feedstock grown on land with high biodiversity value such as primary forests and highly biodiverse grasslands; not being produced on land with high carbon stocks such as wetlands or continuously forested areas and, not being produced on peat land. RED specifies a 35 percent requirement for GHG emissions-saving threshold as a starting point. It increases to 50 and 60 percent in 2017, depending on whether they are produced in new facilities. Environmental sustainability criteria covering bio-diverse and high-carbon-stock lands are also laid out in the RED. Other sustainability criteria are mentioned and reporting requirements are established. These cover other environmental criteria for soil, water, and air quality, as well as social criteria, which focus on food price impact, and adherence to International Labor Organization conventions. The biodiversity criteria apply on land that would have been classified as highly biodiverse in January 2008. Biofuels may not be made from raw material obtained from land with high biodiversity value such as primary forest and other wooded land, areas designated by law or by the relevant competent authority for nature protection purposes, highly biodiverse grassland or highly biodiverse non-grassland. The EC is currently developing the criteria for biodiverse grasslands based on an open consultation conducted early in 2010. Biofuels shall also not be made from raw materials produced on land with high carbon stock such as wetlands, peatlands, or continuously forested areas. The agricultural raw materials produced within the EU must be produced in accordance with the minimum requirements for good agricultural and environmental conditions that are established in the common rules for direct support schemes under the common agricultural policy (CAP) (Cross compliance Article 17 § 6 of the RED). MS competent authorities are responsible for ensuring that biofuel counted towards targets, mandates, and tax credits fulfill sustainability criteria. MS are not allowed to have higher or lower sustainability criteria than those set by the EC, and must accept all certification systems recognized by the EC. However, with each MS having different checklists, there is a possibility of getting 27 different national certification schemes that must be registered and recognized by the European Commission – which apply to biofuel produced in the EU member states as well as third countries. GHG emissions To count toward the 10 percent target, biofuels must currently have a GHG emissions saving of at least 35 percent. GHG emission savings are calculated using lifecycle analysis and following methodologies described in RED annexes. The European Commission’s Joint Research Center (JRC) define the GHG emissions savings for different raw materials and selected production and supply pathways. The results of these are presented in the RED annex. JRC calculated GHG emissions for cultivation, processing, transport, and distribution for different raw materials and used this to determine GHG emissions savings. Net carbon emissions from indirect land-use change are not included. Under the RED, it is possible to use actual numbers using proper documentation and Life Cycle Analysis procedures to achieve GHG emission saving values which are higher than the defaults. It is always possible to claim the default value without any supporting documentation. 1 2 Typical GHG savings Default GHG savings Rape seed biodiesel 45% 38% Soy bean biodiesel 40% 31% Sun flower biodiesel 58% 51% Palm oil biodiesel (Process not specified) 36% 19% Palm oil biodiesel (process with methane capture at oil mill) 62% 56% 7 Corn ethanol, Community produced (natural gas as process fuel in 56% 49% CHP plant) Sugar beet ethanol 61% 52% Sugar cane ethanol 71% 71% Waste vegetable or animal oil biodiesel 88% 83% Source: European Commission, RED (Indirect land use is not included). (1) Typical implies an estimate of the representative greenhouse gas emission saving for a particular biofuel production pathway. (2) Default implies a value derived from a typical value by the application of pre- determined factors and that may, in circumstances specified in this Directive, be used in place of an actual value. When the default values were calculated the Commission applied a “discount factor” from the typical value, to ensure that the biofuel pathway was not inflated. If the typical value is used for biodiesel made from soybeans, it would have a GHG saving value of 40 percent and be above the 35 percent threshold. According to the RED, biodiesel made from soya oil does not automatically comply with the GHG emission criteria. The RED’s GHG emissions saving default reference value for soy diesel is 31 percent, which is below the minimum GHG threshold. On closer examination, this value was calculated using a pathway where soybeans are first shipped from Brazil, then transformed into soy oil and biodiesel in the EU. Using lifecycle analysis, the value for soy-based biodiesel produced in and shipped from the United States, by nature of having a different pathway, would be different. With no international standard in place for the calculation of GHG savings, there are some concerns that protectionists could use GHG thresholds to hamper trade. EC officials have stated they do not wish to have GHG saving numbers for different geographical areas, but prefer to base these GHG numbers on specific pathways, calculations are such as no-till farming, to allow for easier updates. The Commission is reportedly updating the default values on GHG emissions in the RED however, is not likely to publish updated values until the question of Indirect Land Use Change (ILUC), as discussed below, is resolved. Indirect Land Use Change (ILUC) The RED calls for indirect land use change to be taken into consideration when calculating GHG emissions savings values for most first generation biofuels. The EU is currently debating how and to what extent to account for indirect land use change, a discussion that has been going on for years. In December 2010, the Commission published a report on ILUC. The report acknowledges that ILUC can reduce GHG emission savings but also identifies a number of uncertainties associated with the available models. The EC is reviewing different methodologies to calculate GHG emissions caused by indirect land use changes and so that current published values can be adjusted. The Commission published an impact assessment in July 2011. There is still no indication on when the Commission will publish the report on ILUC. On the EC “transparency platform” there are several pieces of work on ILUC that the EC has launched in order to better understand the effects of indirect land use change associated with biofuels and bioliquids. Many of these documents were originally related to the internal work in the EC, and were only published after a court obliged the EC to do so under the EU transparency principle. The EC is using these studies to determine the ILUC factor. Certification of biofuels There are three different ways for biofuels, including those that are exported to the EU to be certified and count towards the 2020 target. Those three options are: • Voluntary schemes [1] • Member State schemes • Bilateral or multilateral Agreements 8 According to the Commission voluntary schemes will be by far the most important way for biofuels to be certified. The Commission has so far made public eight voluntary schemes for certification of biofuels in the EU and additional schemes are expected to be published. The current schemes are: • Abengoa “RED Bioenergy Sustainability Assurance” (RBSA) - All kinds of feedstock in all regions. • Biomass Biofuels (2BaSvs) - All kinds of feedstock in all regions. • Bonsucro – Sugarcane in all regions. • Greenergy Brazilian Bioethanol verification program – Sugarcane in Brazil. International Sustainability & Carbon Certification (ISCC) – All kinds of feedstock in all regions. • Roundtable of Sustainable Biofuels EU RED - All kinds of feedstock in all regions. • Roundtable for Responsible Soy – Soybeans outside the EU. • Ensus – a UK scheme for ethanol There are many more schemes that are currently being reviewed by the Commission. National Renewable Energy Action Plans The RED required MS to submit National Renewable Energy Action Plans (NREAPs) by June 30, 2010. These plans provide detailed roadmaps of how each MS expects to reach its legally binding 2020 target. The Commission is currently evaluating them. The summarized information in the NREAPs indicates that the overall share of renewables in 2020 will be 20.7 percent, slightly exceeding the target. Many MS say they will increase the use of biomass for the production of renewable energy. However, they do not specify from where the biomass would come. This has intensified the discussions on sustainability criteria for biomass. More information on this can be found in the section “Pellet Standards and Sustainability Criteria”. Trade Policy There are no specific codes for bioethanol in international trade nomenclature. Currently for ethanol the two main codes are 220710 for undenatured ethanol and 220720 for denatured ethanol. Blends with petrol may also appear under other codes depending on the proportion of the mix. For biodiesel, a code that covers fatty-acid mono-alkyl esters (FAMAE) was introduced in January 2008, and changed in January 2012. However, other forms of biodiesel could still enter under other codes depending on the chemical composition. Diesel with a biodiesel component of less than 30 percent can enter the EU under chapter 271020 at a tariff rate of 3.5 percent. HS Code Description Duty Rate 38249091 FAMAE 96.5 percent 6.5% (plus AD and Cv duties for U.S. and most Canadian companies) (Until 12/31/2011) 3826001 FAMAE 96.5-100 6.5% (plus AD and Cv duties for U.S. and most Canadian companies) (As of 1/1/2012) percent 38260090 FAMAE below 96.5 6.5% (plus AD and Cv duties for U.S. and most Canadian companies) percent 271020 B30 and below 3,5% 220710 Undenatured ethanol €19.2/hl 220720 Denatured ethanol €10.2/hl On October 12, 2011, the EU Customs Code Committee approved a proposal by the EC to classify ethanol and gasoline blends with an ethanol content of 70 percent or more as denatured ethanol under code 2207 20 00. Therefore exporters of E90 to the EU will be charged the import tariff of € 10.20 per hectoliter normally charged for denatured ethanol. Previously, ethanol was 3 imported under code 3824(Chemicals), at an import duty of 6.5 percent. This equates to approximately €102/m compared to the 3 current import duty of €32/m . 9 On March 12, 2009, the Commission published Regulation 193/2009 and Regulation 194/2009, containing provisional anti- dumping and countervailing duty measures on imports of biodiesel from the United States containing 20 percent or more of biofuels. The Regulations and duties entered into force on March 13, 2009 and applied for 6 months, after which they were made definitive for a 5-year period. On May 5, 2011, the European Commission published a Council Decision to extend the definitive countervailing and anti- dumping duties imposed on all biodiesel originating in the United States. The countervailing and anti-dumping duties were thus extended on biodiesel blends of 20 percent or less originating from the United States. The measures adopted by the Commission were retroactive and extend to August 13, Calculations are 2012. They consist of countervailing duties on all imports of biodiesel originating in the United States containing blends of 20 percent or less. For U.S. companies that were investigated in 2009, the combined duties will apply, € 213.8 - € 409.2/ton. Other U.S. companies will be subject to the highest combined duty of € 409.2/ton, based on the biodiesel content in the blend. E90 Imports of E90 to the EU increased to such degree since the beginning of 2010 that EU industry considered it as dumping. The EU industry claims that they were suffering because the Unites States has the ability to export ethanol at lower prices than the EU can supply domestically. The European ethanol industry requested that the Commission investigate and take legal action against the United States to protect the EU industry. On November 25, 2011, the European Commission notified in the Official Journal that they would be initiating an anti-subsidy and anti-dumping investigation on bioethanol originating in the United States. The investigation is currently ongoing. It should be concluded within 15 months of the date of the publication and provisional measures should be imposed no later than nine months from the publication, which conclude in August 2012. Biomass sustainability The RED required the European Commission to look into whether sustainability criteria for solid and gaseous biomass are needed. On February 25, 2010, the Commission adopted a sustainability report for biomass other than biofuels and bioliquids. The report makes recommendations on sustainability criteria for individual MS to use as guidance however, no obligatory sustainability criteria were set. The report also stated that the Commission planned to publish an impact assessment on sustainability criteria for biomass by December 2011, however as of June 2012 no report has been published. The Commission held a public consultation on this issue and received 160 comments. Reportedly the Commission is planning to come forward with the impact assessment after the summer of 2012. This impact assessment will, if appropriate, be accompanied by a proposal. Review of the RED The RED stipulates that by December 31, 2014, the Commission shall present a report on some of the details in the RED. These include:  A review of the minimum GHG emission saving thresholds  The cost efficiency of the measures implemented to reach the 10 percent target  The impact of biofuel production on the availability of foodstuffs at affordable prices  An assessment of the feasibility of reaching the 10 percent target while ensuring the sustainability of biofuels production in the Community and in third countries. On the basis of this report the Commission will propose to modify the RED to address such aspects as the minimum GHG savings if it deems appropriate. 10 Conventional Bioethanol EU Production, Supply and Demand Table Compared to the United States and Brazil, the EU is only a minor producer of bioethanol (ethanol produced from agricultural feedstock used as transport fuel). On volume basis, bioethanol represented about 28 percent of the total biofuels market in the road transport sector in 2011. Ethanol - Conventional & Advanced Fuels (million liters) r r r r r e f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Production 1,633 1,806 2,587 3,471 4,177 4,620 5,000 5,380 -Advanced Only Imports 228 1,000 1,101 899 878 1,008 950 950 Exports 53 56 61 101 75 94 95 95 Consumption 1,725 2,375 3,509 4,603 5,127 5,506 5,853 6,234 Ending Stocks 82 458 577 243 97 62 64 65 Production Capacity (Conventional) No. of Biorefineries 36 51 60 66 68 70 71 74 Capacity 2,066 3,458 5,138 6,234 7,570 7,697 8,013 8,450 Capacity Use (%) 89 65 60 61 61 61 64 65 Production Capacity (Advanced) No. of Biorefineries 1 1 2 2 3 3 3 3 Capacity 0.15 0.15 5 5 10 10 10 10 Capacity Use (%) - - - - - - - - Co-products from Conventional Biofuel Production (1,000 MT ) DDG 1,488 1,305 1,495 2,296 2,963 3,384 3,712 4,020 r = revised / e = estimate / f = forecast EU FAS Posts. Sources: EU FAS Posts and statistics of Eurostat, World Trade Atlas and the European Renewable Ethanol Association (ePURE). Production capacity as of December 31 of year stated. DDG = Distillers Dried Grains, theoretical maximum production. Ethanol - Conventional & Advanced Fuels (1,000 MT) r r r r r e f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Production 1,290 1,427 2,044 2,742 3,300 3,650 3,950 4,250 Imports 180 790 870 710 694 796 750 750 Exports 42 44 48 80 59 74 75 75 Consumption 1,363 1,876 2,772 3,636 4,050 4,350 4,624 4,925 Ending Stock 65 362 456 192 77 49 51 51 Production Cap acity No. of Biorefineries 36 51 60 66 68 70 71 74 Capacity 1,632 2,732 4,059 4,925 5,980 6,081 6,330 6,675 a Ethanol – Total, All Uses (million liters) r r r r e e f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Production 2,706 3,115 3,580 4,771 5,477 5,920 6,300 6,680 Imports 973 1,667 2,386 1,896 1,454 1,784 1,570 1,500 Exports 66 70 58 73 92 100 100 100 Consumption 3,613 4,336 5,789 6,928 6,985 7,639 7,769 8,080 Ending Stock 132 508 627 293 147 112 113 113 Production Cap acity Capacity 3,566 4,958 6,638 7,734 9,070 9,197 9,513 8,080 11 Capacity Use (%) 76 63 54 62 60 64 66 67 Sources: EU FAS Posts and statistics of World Trade Atlas and the European Renewable Ethanol Association (ePURE) (a) Ethanol produced by fermentation of agricultural products, does not include synthetic ethanol. a Ethanol – Used as Other Industrial Chemicals (million liters) e e f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Production 602 691 662 650 650 650 650 650 Consumption 944 981 1,140 1,163 929 1,067 958 924 Sources: EU FAS Posts and statistics of World Trade Atlas and the European Renewable Ethanol Association (ePURE) (a) Ethanol produced by fermentation of agricultural products. Production Capacity Bioethanol production capacity is forecast to increase from about 2,100 million liters in 2006 to about 8,500 million liters in 2013. The majority of the production capacity has been installed in the Benelux countries, France, Germany, the UK, Spain and Poland. During the period 2007 - 2011, only about sixty percent of the available capacity was utilized. This is partly due to the fact that the EU is building its sector and new plants need a start up phase to be fully operational. During the seasons 2007/2008 and 2010/2011, utilization was also low due to high grain prices. Another reason for the underutilization was competitive bioethanol imports from Brazil during 2007 - 2009, and from the United States during 2010 and 2011. Fuel Ethanol Production – Main Producers (million liters) r r r r r e f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Benelux 19 37 76 143 380 696 1,013 1,013 France 294 539 746 906 942 949 949 949 Germany 430 397 580 752 765 730 759 823 United Kingdom 0 44 70 70 278 190 253 316 Spain 405 359 346 465 471 465 465 465 Poland 162 120 114 165 194 171 203 228 Other 323 310 655 970 1,147 1,419 1,295 1,396 Total 1,633 1,806 2,587 3,471 4,177 4,620 5,000 5,380 r = revised / e = estimate / f = forecast EU FAS Posts. Source: EU FAS Posts Production The growth of EU bioethanol production flattened somewhat from an annual increase of about 700 - 800 million liters in 2008, 2009 and 2010 to around 400 million liters in 2010 and 2011 (see graph below). The EU bioethanol production in 2011 is estimated at 4.6 billion liters. On an energy basis, this is equivalent to 29 million barrels of crude oil. During 2009 and the first half of 2010, production margins were supported by low domestic feedstock prices (see graph below). Since the first quarter of 2010, however, producer margins deteriorated due to plummeting domestic ethanol prices (see trade section) and elevated feedstock prices. Feedstock supplies are anticipated to remain tight during MY2012/2013 (see FAS EU Grain and Feed Annual). In general, negative margins on bioethanol production with cereals as feedstock are anticipated during seasons with a tight supply of grains on the EU and world market. Producers are reportedly able to reach positive margins mainly due to the returns on selling Distillers Dried Grains (DDG). In 2010, 2011, and the first half of 2012, the EU bioethanol industry faces the same problems as the EU biodiesel industry previously experienced, namely an excess of production capacity on the market, slackening demand and competitive imports, mainly from the United States. For this reason, the domestic production estimate for 2011 and 2012 is lower than anticipated in the previous Annual Biofuels Report, and is adjusted downwards by 190 and 510 million liters, respectively. 12 13 In Germany, bioethanol production was forecast to increase in 2011 in response to the anticipated higher demand created through the introduction of E10. However, German bioethanol production declined by 4 percent in 2011 which the German industry attributes to extensive E90 and ETBE imports from the United States. In the UK, a bioethanol plant with a capacity of about 300 million liters temporarily stopped production in May 2011. This closure was probably also related to the supply of competitive third country imports and the lower than expected consumption of E10 in Germany (see consumption section). Imports of bioethanol are forecast to decline to some extent during the second half 2012 (see trade section). These lower imports from the world market could create room for domestic producers to supply the growing demand for bioethanol. Production increases are forecast in the Benelux countries, Germany, the UK, Poland and Hungary. The uncertainty about the implementation of the ILUC factor remains a risk for further investment. Production is expected to surge in the Netherlands and Belgium as the ports in this region provide easy access to feedstock from other continents. Rotterdam also serves as a hub for fossil fuel logistics, which makes it a strategic location for biofuels blending and further distribution. In the port of Rotterdam, a bioethanol plant with a capacity of about 570 million liters started production mid 2010. In the UK, all plants are located on the east coast of England in close proximity to deep water ports. In the UK, a large wheat -to-ethanol plant (420 million liters capacity) started test production in April 2012, while another plant reportedly resumed production. Large investments were also made in the Southeast of the EU, mainly Hungary and Romania. In Hungary, the ample domestic supply of corn will be utilized by a bioethanol plant with an annual production capacity of 240 million liters. The plant started operation in March 2012, and is planned to be enlarged to a capacity of 480 million liters in 2013. In southern Romania, a large- scale bioethanol producer launched activity in September 2009, with an annual production capacity reaching 125 million liters. Also for this plant the main feedstock is corn. Other projects in development are reported in Slovakia and Croatia. However, should ethanol imports continue to be priced competitively, domestic production may be affected (see trade section). Following this scenario, consolidation of the sector, with closure of smaller plants and investments in larger size plants, seems inevitable. At the moment, plants are owned by large multinationals as well as by larger and midsized domestic cooperatives and processors, such as corn wet millers and sugar producers. 14 Feedstock Use Feedstock Used for Fuel Ethanol Production (1,000 MT) r r r r r e f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Wheat 1,351 1,347 1,624 2,311 3,733 4,466 5,131 5,591 Corn 397 517 1,155 2,298 2,530 2,944 3,211 3,436 Rye 1,039 659 722 955 1,122 986 957 1,051 Barley 1,234 1,004 540 641 623 749 734 790 Sugar beet 3,082 5,370 9,448 10,086 10,705 10,330 10,282 10,831 r = revised / e = estimate / f = forecast EU FAS Posts. Note: Official data for feedstock use is scarcely available. The figures above represent estimates by EU FAS posts based on known feedstock / ethanol conversion rates. While plants in the United States and Brazil are predominantly located in the feedstock production regions, and focused on a single feedstock, plants in the EU are often located close to the end-market and designed as multi-feed stock plants. In the EU, bioethanol is mainly produced from wheat, corn, rye, barley and sugar beet derivatives. A limited volume of bioethanol was produced from the surplus of wine alcohol, but this has reportedly stopped. Wheat is mainly used in northwestern Europe, while corn is predominantly used in Central Europe and Spain. Rye is applied as feedstock for bioethanol production in Poland, the Baltic Region and Germany, while barley is mainly used in Germany and Spain. In northwestern Europe and in the Czech Republic sugar beets are used. During the high grain prices in MY2007/2008 and MY2010/2011, sugar beet derivatives, mainly sugar syrup, were a favorable feedstock for bioethanol production. Because of the drop in grain prices in MY2011/12, however, sugar is a less competitive option in these outlets. As a result, little or no growth in sugar for industrial uses is anticipated in MY2011/12. This is reflected in the absence of any new investments for bio-ethanol production from sugar beet in 2011 and 2012 (see FAS EU Sugar Annual). Following the forecast of an increasing supply of corn in MY2012/2013, it is anticipated that multi-feedstock plants in the EU will switch from wheat to corn. In the EU, cropland is increasingly being applied for biofuels production. In France for instance, the share of corn, wheat, and sugarbeet production used for bioethanol accounts for 7, 10, and 23 percent of the total production, respectively. In the EU, the required feedstock for the 2012 production (5,000 million liters of bioethanol) is estimated at nearly 10.1 MMT of cereals and 10.3 MMT of sugar beets. This is about 3.6 percent of total EU cereal production and 8.9 percent of total sugar beet production. Co-products of the bioethanol production are Distillers Dried Grains (DDG), wheat gluten and yeast concentrates. In 2012, the maximum theoretical production of co-products is forecast to reach 3.7 MMT. This is about 2.2 percent of total EU feed grain consumption. Consumption Fuel Ethanol Consumption – Main Consumers (million liters) r r r r r e f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Germany 599 584 791 1,142 1,475 1,568 1,709 1,835 United Kingdom 0 94 152 354 633 823 924 1,013 France 294 539 814 805 782 949 949 949 Spain 228 251 182 299 446 452 456 456 Benelux 35 168 234 357 370 392 424 456 Sweden 329 438 428 392 400 419 428 428 Poland 118 82 190 253 337 316 342 380 Other 122 219 718 1,001 684 587 596 591 Total 1,725 2,375 3,509 4,603 5,127 5,506 5,853 6,234 r = revised / e = estimate / f = forecast EU FAS Posts. Source: EU FAS Posts During 2006 – 2009, EU bioethanol consumption expanded by 0.6 to 1.2 million liters per year. But the growth has flattened during 2010 and 2011, and is anticipated to remain moderate during 2012 and 2013. In 2008, consumption was supported by the 15 high crude oil prices (see graph above) which made substitution, or blending, of gasoline with bioethanol attractive. Since 2009, however, this beneficial price difference has deteriorated. In some EU MS, oil companies chose to pay the penalties for not complying with the blending mandates. In Germany, introduction of E10 resulted in a 6 percent increase in bioethanol consumption but remained below the forecast in the previous Biofuels Annual. As of January 1, 2011, Germany allowed gasoline to contain up to 10 percent of bioethanol. Prior to this date only E5 was allowed to be sold on the German market. The introduction of E10 translates into a potential market for bioethanol of 1.5 MMT, if all gasoline sold in Germany were to be E10. However, consumer groups and the German car drivers association (ADAC) criticized the introduction of E10 and the lack of information regarding the compatibility of their cars and E10. E10 was also introduced on the Finnish and Swedish market in 2011. However, Swedish flexi-fuel drivers tend to abandon ethanol when gasoline cost less. Since the start of 2012, the price margin between gasoline and ethanol improved slightly. For 2012, German consumption is expected to increase as high fuel prices make E10 more attractive. In February 2012, fuel prices hit an all time record high and the 5 Eurocent discount for E10 compared to E5 is expected to convince more consumers to use E10. Recent reductions of the crude oil prices in June, were being offset by the weakening Euro against the US$. Based on the mandates and national policy incentives (see policy section of this report), bioethanol consumption is forecast to continue to grow to 5.4 billion liters in 2013. During 2012 and 2013, the main markets will be Germany, the UK and France, with Germany and the UK as the main growth markets. France and Spain will be for the most part self sufficient. A surplus will be available in the Benelux countries, and in lesser extent in Central European countries, mainly Hungary and Austria. Germany and the UK will depend on imports for fifty percent of their consumption. Another deficit region is Scandinavia. Trade During 2006 – 2012, the majority of the bioethanol has been imported by the Benelux countries, the UK, Sweden, and Finland mainly through the port of Rotterdam. A part of the bioethanol imports is blended with gasoline in Rotterdam, but most of the biofuel is blended at its final destination to fulfill local EU Member State requirements. The EU has several schemes for preferential trade regarding ethanol imports; the Everything But Arms (EBA) initiative, the Cotonou Agreement (for the African, Caribbean, and Pacific countries), the Euro-Mediterranean Agreement and special drug diversion programs. The EU tariff on undenatured ethanol (HS 220710) is 192 Euro per thousand liters, while the tariff on denatured ethanol (HS 220720) is 102 Euro per thousand liters. By denaturing, ethanol is made unsuitable for human consumption by adding substances according EC Regulation 3199/93. Most EU Member States only permit blending with undenatured ethanol, by which their domestic market is protected by the higher tariff rate. The governments of the UK, the Netherlands, Finland, Denmark, the Czech Republic and Slovakia, however, also permit blending with denatured ethanol. The major part of bioethanol has been, however, exported under HS 2207 but imported as a blend with a Binding Tariff Information (BTI) under the HS code 38249097, subject to a lower tariff, namely 6.5 percent of the customs value. This practice of blending gasoline with bioethanol is conducted either before arrival on the continent, or under customs control on EU territory. As a result, a significant difference exists between the reported HS 2207 export volume to the EU and reported HS 2207 import volume. This gap is roughly equal to the import volume under HS 38249097 reported by Eurostat (see graph below). As from April 3 2012, however, the EU’s Customs Code Committee reclassified ethanol blends of 70 percent, previously classified under HS 38249097, as denatured ethanol under HS 2207, subject to a higher import tariff of 102 Euro per thousand liters (Regulation 211/2012). Companies with a BTI will be allowed to continue importing bioethanol blends for three additional months (see for more information the Policy Chapter). 16 During 2010 and 2011, a part of the reduced bioethanol blends from Brazil was replaced by increased imports from the United States (see graph above). Reportedly the majority has been imported as E90 (90 percent bioethanol). As these imports avoided the high tariffs for HS 2207, the price deviation between the world and protected EU market disappeared, and as a result, EU domestic prices for bioethanol plummeted. Bioethanol imports from Brazil were also replaced by increased imports of ETBE, from both Brazil and the United States. Further growth of ETBE imports is not anticipated due to the limited production capacity in the producing countries. While the U.S. and Brazil have gained free access to each other’s bioethanol markets, the EU is becoming increasingly an isolated market with high import tariffs. Despite the effort of the EC to regulate imports, the main factor, which will determine EU imports in 2012 and 2013, is anticipated to be the supply from Brazil and the United States. The regulated demand in the EU, could significantly raise domestic ethanol prices and could consequently attract bioethanol from either the market in Brazil or the United States. This is a consequence of the fact that EU domestic production is insufficient to fulfill the growing regulated domestic demand. In 2012 and 2013, EU imports from Brazil are not expected to recover following the continuing restricted domestic production. However, based on the ample and competitive supply, imports from the United Sates are anticipated to continue. The termination of the blender’s credit on December 31, 2011, had no noticeable effect on imports from the United States during the first four months of 2012. As from mid June, the reclassification of bioethanol blends to the higher tariff rate has been fully implemented (see above), which in effect adds about 12 percent on the FOB NW EU price of bioethanol. This additional fee is expected to only marginally reduce imports from the United States. European traders report that the U.S. production will remain below EU production costs, and due to the generally lower price and larger cargoes available, buyers will continue to favor purchase of U.S. product. The forthcoming U.S. corn harvest could further reduce the cost price of U.S. bioethanol production. While the EU grain supply is expected to remain tight next season (see FAS EU Grain & Feed Annual). According to some sector sources, an uncertain factor is that the language of the regulation which enforces the reclassification is not explicit, and is open for interpretation. Exporters could possibly avoid the higher tariff rate with a blend of just below 70 percent bioethanol. Another option could be finished blends, E5 or E10, under the HS code 27, with a tariff of 4.7 percent. Trading such blends holds, however, a risk due to the uncertainty about the exact enforcement of the regulation. Furthermore, the EC has reportedly communicated that with the regulation, in practice all blends will fall under the high tariff rate of denatured ethanol. BTIs for importation under HS 3824 will reportedly not be granted. Under this trading condition, importing pure bioethanol under HS code 2207 would be the most cost-effective option. A remaining uncertainty is, however, the anti-subsidy and anti-dumping investigation of the EC, which provisional measures are expected to be imposed in August 2012 (see Policy 17 Chapter). But even with a further increase of import tariffs, traders expect the EU market will have to attract bioethanol from third countries to fulfill its demand. In 2012 and 2013, total EU imports of bioethanol are forecast to remain close to 1 billion liters. Imports of corn and sugar cane ethanol are not expected to be significantly constrained by the implementation of the sustainability requirements laid down in the Renewable Energy Directive 2009/28/EC (RED) in national MS legislation (see policy section of the report). Only a limited number of compliant ethanol plants are required to maintain the current trade volume. Future policies of the EC and MS Governments’ interpretation and implementation of the RED remain however an uncertain aspect in forecasting future bioethanol imports. Imports could be hampered by a stricter or even inconsistent execution of the RED by the individual EU Member States. Stocks As a result of elevated domestic production and imports, ethanol stocks have been building during 2007 and 2008. The current storage capacity for ethanol, bioethanol and ethanol for non-fuel use, in the port of Rotterdam is estimated at about 600 million liters. During 2009 and 2010, stocks were reduced and are not expected to build during 2012 and 2013 as world supply is anticipated to stagnate, while domestic demand is forecast to grow. 18 Conventional Biodiesel EU Production, Supply and Demand Table The EU is the world’s largest biodiesel producer. Biodiesel is also the most important biofuel in the EU, on volume basis representing about 70 percent of the total biofuels market in the transport sector. Biodiesel was the first biofuel developed and used in the EU in the transport sector in the 1990s. At the time, the rapid expansion was driven by an increasing crude oil price, the Blair House Agreement and resulting provisions of the EU’s set-aside scheme, and generous tax incentives mainly in Germany and France. EU biofuels goals set in directive 2003/30/EC (indicative goals) and in the RED 2009/28/EC (mandatory goals) further pushed the use of biodiesel. Conventional & Advanced Biodiesel (million liters) r r r r e f f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Production 9,860 10,710 10,710 10,850 11,475 5,410 6,670 9,550 Imports 2,190 2,400 3,160 3,070 2,425 70 1,060 2,020 Exports 75 115 100 115 125 0 0 70 Consumption 12,270 13,270 13,750 13,800 13,775 5,480 7,730 10,400 Ending Stocks 805 530 550 550 550 0 0 1,100 Production Capacity (Conventional Fuel) No. of Bioref. 119 187 240 248 260 256 257 252 6,600 12,745 18,375 23,230 23,700 24,465 24,345 24,265 Capacity 44% 47% 55% 69% 61% 47% 46% 44% Cap. Use (%) Production Capacity (Advanced Fuel) 0 0 0 0 0 0 0 0 No. of Bioref. 0 0 0 0 0 0 0 0 Capacity Feedstock Use - Conventional (1,000 MT) Rapeseed oil 3,710 4,230 6,040 6,050 6,220 6,310 6,410 6,250 Soybean oil 570 830 960 1,050 1,100 1,080 1,060 1,280 Palm oil 280 390 600 660 910 710 740 1,100 Rec. veg. oils 100 200 320 380 650 670 780 800 Animal fats 60 140 350 360 390 420 335 340 Sunflower oil 30 70 130 170 150 180 185 190 other 10 10 10 10 10 60 140 140 Grand total 4,760 5,870 8,410 8,680 9,430 9,430 9,650 10,100 r = revised / e = estimate / f = forecast EU FAS Posts. Production capacity as of December 31 of year stated. The PSD is built on information in MT and converted to liters using a conversion rate of 1 MT = 1,136 liters. Sources: FAS Posts, Global Trade Atlas (GTA), European Biodiesel Board (EBB). Note: Data for feedstock use is not available. The figures above represent estimates by EU FAS posts. Conventional & Advanced Biodiesel (1,000 MT) r r r e f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Production 4,760 5,870 8,410 8,677 9,425 9,425 9,550 10,100 Imports 60 930 1,780 1,930 2,113 2,783 2,700 2,135 Exports - - 60 67 103 88 100 110 Consumption 4,820 6,800 9,160 10,800 11,680 12,100 12,150 12,125 Ending Stocks - - 970 710 465 485 485 485 Production Capacity (Conventional Fuel) No. of Bioref. 119 187 240 248 260 256 257 252 19 Capacity 5,806 11,218 16,176 20,450 20,860 21,537 21,430 21,360 Production Capacity (Advanced Fuel) No. of Bioref. 0 0 0 0 0 0 0 0 Capacity 0 0 0 0 0 0 0 0 Source: EU FAS Posts 1 MT = 1,136 liters Production Capacity In the EU, the years of rapid expansion of biodiesel production capacity seem to be over. From 2006 to 2009 production capacity increased by 360 percent, followed by comparatively small increases in 2010 and 2011 of just two and three percent, respectively. For 2012 and 2013, capacity is forecast to contract by 0.5 and 0.3 percent, respectively. The Benelux and Sweden reported the largest increases for 2011. France and the Slovak Republic expect a dismantling of capacity in 2012 and 2013. The waning interest in investing in biodiesel capacity is a result of difficult market conditions. From 2008 onwards, the comparatively low crude oil prices, high vegetable oil prices, increasing imports, and the financial crisis resulted in a difficult market for biodiesel. As a result, use of capacity dropped from 68 percent in 2007 to a mere 44 percent in 2009, where it has kept lingering since. A number of plants all over the EU temporarily stopped production or closed. Under the current market conditions with high imports, high feedstock prices and only limited projected increase in consumption it is questionable that the EU biodiesel market can support all existing production capacity and many projects that were planned under different conditions were delayed or stopped altogether. Even with the projected increase in EU biodiesel consumption through mandates, one can expect to see a number of plants closing their operation or even having to file for bankruptcy in the coming years. The structure of the biodiesel sector is very diverse and plant sizes range from an annual capacity of 2,000 MT owned by a group of farmers to 600,000 MT owned by a large multi-national company. Production In contrast to previous expectations, EU-27 biodiesel production did not benefit from increased mandates and remained stagnant in 2011. Instead, exporters from Argentina and Indonesia were able to expand their market share. For 2012 and 2013, an increase of one and five percent, respectively, is forecast, prompted by Spanish legislation that limits the use of biodiesel that was produced outside of the EU. (For more details please refer to the trade section below.) The projected increase in Spanish production translates into higher feedstock use of palm oil and soybean oil in 2012 and 2013 (see table above). In 2006, the top three producing MS (Germany, France, and Italy) together accounted for 75 percent of the EU’s biodiesel production. By 2011, the share of the top three producing MS (Germany, France, and the Benelux) dropped to 59 percent. This is a clear indication that the production of biodiesel is gradually increasing in the other MS, as these increase their domestic production to meet the various MS biofuel mandates. EU Biodiesel Production – Main Producers (million liters) r r r e f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 Germany 2,730 3,280 3,250 2,600 2,880 2,790 2,670 2,560 France 650 1,090 2,000 2,610 2,270 2,350 2,390 2,390 Spain 140 170 280 700 1,370 740 800 1,480 Benelux 50 290 430 840 910 1,140 1,140 1,140 Italy 680 530 760 900 830 570 680 680 Poland 100 60 310 420 430 430 470 490 Others 1,060 1,250 2,520 1,790 2,010 2,680 2,700 2,735 Total 5,410 6,670 9,550 9,860 10,700 10,700 10,850 11,475 Source: FAS EU Posts 20 Feedstock Use Rapeseed oil forms the major feedstock in the EU and accounts for two thirds of total input in biodiesel production. The use of soybean and palm oil is limited by the EU biodiesel standard DIN EN 14214. Soybean-based biodiesel does not comply with the iodine value prescribed by this standard (the iodine value functions as a measure for oxidation stability). Palm oil-based biodiesel reportedly does not provide enough winter stability in northern Europe. However, it is possible to meet the standard by using a feedstock mix of rapeseed oil, soybean oil, and palm oil. The vast majority of soybean oil is used in Spain, France, Italy, and Portugal. Recycled vegetable oils and animal fat are not as popular feedstock as vegetable oils, however, their use is increasing as 1) they form a cheaper alternative feedstock and 2) in some member states (Austria, Denmark, Finland, France, Germany, Ireland, the Netherlands, and the U.K.) they count double against the use mandates. The category “other” includes cottonseed oil (Greece), as well as pine oil and wood (Sweden). At least 1.5 million MT of the vegetable oil is imported (palm oil, soybean oil, and to a lesser extent rapeseed oil) and an unquantifiable share of the domestically produced feedstock is crushed from imported oilseeds (soybeans and rapeseed). The 6.4 MMT of rapeseed oil feedstock projected for 2012 translates into required 16 MMT of rapeseed and generates about 9 MMT of rapeseed meal as by-product, most of which in the EU. Similarly, the 1.06 MMT soybean oil will have to be crushed from 5.3 MMT of soybeans and generate about 4.2 MMT soybean meal; roughly half and half inside and outside of the EU (see also FAS EU Oilseeds Annual). Consumption After years of rapid use increases, EU-27 biodiesel consumption seems to have reached a plateau. In 2011, Germany, France, Spain, Italy, and the UK were the largest biodiesel consumers in the EU (see table). For 2012, EU consumption is forecast to marginally increase by 0.4 percent, driven almost exclusively by MS mandates and to a lesser extent by tax incentives. Increases are projected, most prominently, in Poland, France, and the Benelux. For 2013, EU-27 consumption is forecast to marginally decline as projected increase in Romania, Poland, and Ireland are more than offset by an expected reduction in Germany. Germany is an exception to the overall trend of increasing consumption. Since 2006, Germany has been in the process of transferring support from fuel tax reduction to mandates and is gradually increasing the energy tax on pure biodiesel (B100). As a result, since 2009, the majority of biodiesel consumption is mandate driven, as B100 outside the mandate is no longer competitive with fossil diesel. In addition, the introduction of E10 to the German market in 2011 and double counting of waste oil based biodiesel reduces the amounts of biodiesel that are needed to fill the mandate. The projected lower biodiesel consumption in Germany is also expected to put France in the first position as the largest EU biodiesel market for the first time in 2012. 21 EU Biodiesel Consumption – Main Consumers (million liters) r r r e f f Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 France 720 1,480 2,390 2,620 2,580 2,610 2,670 2,670 Germany 3,270 3,560 3,060 2,860 2,930 2,760 2,610 2,500 Spain 70 330 590 1,170 1,550 1,730 1,730 1,730 Italy 250 230 810 1,310 1,500 1,610 1,590 1,590 Poland 20 40 550 600 780 850 970 1,000 UK 250 470 1,020 910 970 970 970 970 Benelux 30 420 410 740 580 600 630 630 Austria 370 420 460 590 600 610 610 610 Portugal 90 170 170 290 420 390 380 360 Sweden 70 140 100 170 190 300 300 300 Others 340 469 840 1,010 1,170 1,320 1,340 1,410 Total 5,480 7,730 10,400 12,270 13,270 13,750 13,800 13,770 Source: EU FAS posts Trade In March 2009, the European Commission introduced countervailing (CvD) and anti-dumping (AD) duties on U.S. exports of biodiesel to the EU on blends of B20 and above. In May 2011, the duties were extended to all U.S. biodiesel irrespective of blending ratio. As expected, this measure dramatically reduced EU biodiesel imports from the United States. Hopes by the EU domestic biodiesel industry that this would reduce the pressure on the market were only partially fulfilled as the void was filled with increased biodiesel imports mainly from Argentina and Indonesia, and to a lesser extent from Malaysia, Canada (2009 and 2010), and Norway (2011) (see graph below). Biodiesel exports from
Posted: 29 July 2012

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