ILUC? No Luck


In 2008 newspapers reported that Prince Charles’ 45 year old Aston Martin ran on wine while his Range Rover ran on vegetable oil.  Back then, biofuels - namely bioethanol (the wine) and biodiesel (the vegetable oil) – were in vogue. With climate change concerns raging around the globe, the prospect of a carbon neutral fuel seemed like the magical solution to keep folk’s cars on the road.  After all transport is responsible for nearly a quarter of Europe’s overall carbon emissions.  The European Commission duly set a target: 10% of all transport fuel must come from biofuels by 2020.

There is a general rule in life that if something seems too good to be true, then it usually is. With a Commission target providing certainty to investors and a generous subsidy regime to encourage farmers to grow the right crops, the biofuel bubble was about to swell.  Within a decade some 17 million hectares of biofuel crops were planted across the globe.  Crops such as corn, sugar beet, oilseed rape and soy once relatively rare in the EU became considerably more commonplace. The area under oilseed rape cultivation increased by some 200% in only a decade.

The biofuel bonanza was not limited to the fields of Europe.  Across the globe, virgin forests were felled, ‘fuel’ crops planted, and biofuels distilled.  In Malaysia alone the palm oil industry grew from nothing into an enterprise responsible for 39% of world palm oil production  and 44% of world exports.

The unintended consequences of this well-intended initiative were two-fold. The more land given over to the growing of biofuels, the less land was available for growing food crops, with the prospect of either food shortages, price rises, or both.  The second genuinely perverse consequence of the biofuel drive is that for certain crops, such as oil palm, often more energy is expended in growing the crop than the crop would actually generate, particularly so when virgin rainforest is clear felled to provide the land.  Setting aside the loss of the rainforest, a tragedy in its own right, the felling of trees, which serve as a ‘carbon sink’ can actually add to the emissions problem.

The ultimate irony is that an initiative aimed at reducing carbon emissions is almost universally unpopular with green groups. Traditionally in advance of a vote on environmental issues, I would be deluged by green lobbyists demanding I support the green initiative. Not this time.  Without exception the green lobby has taken a vehement detestation of biofuels in general and Commission’s biofuels proposals in particular.

Having initially set a target of 10% of transport fuel to be derived from bofuels by 2020, the European Commission has now recanted and proposed to cap biofuels in the transport fuel mix at 5%.  Note the halving of the ambition and the substitution of ‘cap’ rather than ‘target’.  Earlier today members of the European Parliament’s Environment Committee, aware that any cap will mean fewer jobs in the biofuel sector, voted to raise the cap to 6%.  Now no-one is happy.  The biofuels industry, tipped the wink by the Commission back in the day that biofuels were the next big thing, is feeling badly bruised.  Green groups too are unchuffed with the retreat from the 5% cap, viewing every additional percentage point of relaxation as a dereliction of environmental duty.

Since introducing the biofuel target, the European Commission has sought to walk a tightrope; protecting the nascent industry which it incentivised, while seeking to ensure that food crops are not sacrificed to grow fuel crops, nor forests torn down to sow them. In addition to addressing the mix of biofuels in the transport mix, the Committee also sought to address the ILUC - Indirect Land Use Change - factor. (My life in now dominated by three and four letter acronyms…)

For the uninitiated ILUC refers to the unintended consequences of replacing food crops with fuel crops: food insecurity, food price increase, increase in net carbon emissions.  The problem is that ILUC is hard to measure in any real sense. While it is possible to determine how much land has been converted from food growing to fuel growing, estimating the impact on food prices (which depend upon so many other factors), food insecurity (which is also a relative concept; in the West we talk about food security but discard upwards of 20% of our food as waste), even determining the carbon balance of a forest v. cropland is not straightforward. It can be modelled but with caveats.  Providing an accurate, transparent, and evidence-based assessment of emissions for a particular crop type with the confidence to allow the calculation of an ‘ILUC factor’ (estimated emissions expressed in terms of grams of CO2 per megaJoule) is tough.

Just because you can’t measure something accurately doesn’t mean it isn’t a factor, but when you look at the ILUC modelling, it doesn’t give you much confidence in the veracity of the calculation. Further as a Conservative I might note that market distortion caused by regulation is rarely fixed by further regulation.  Like a sculptor chiseling off the small bump on the statue; tap, tap, tap, and all you are left with is rubble.

So what next for the biofuel industry, and the prospect of cars running on wine and Crisp ’n’ Dry?  In truth the big challenge is nothing to do with ILUC and the cap, although it won’t have raised any smiles in the biofuel plants across the EU, rather it is the Brent Crude oil price scudding around $50 a barrel.  Biofuels are many things, but cheap isn’t one of them.  For as long as petrol and diesel are so cheap biofuels will struggle to compete.  Unless of course you increase the subsidies, and raise the cap.  Isn’t this where we come in…