Europe at the Crossroads

By Robert Vierhout | July 11, 2013

A statement made recently by the head of BP Biofuels that this oil major will not invest in advanced biofuel in Europe must, and should have, come as a shock to European Union policymakers. But above all, it should come as a wake-up call.

BP is directing investment in advanced biofuels to the U.S. and South America due to uncertainty about the EU's future regulatory environment.

I can understand BP's interest for the Americas over Europe. Brazil has an abundance of relatively cheap feedstock, bagasse, the left-over of sugar and ethanol production, lying around in the backyard of every distillery. The U.S. has a great environment to invest in technology, pilot and demo installations. BP finds that the U.S. and Brazil are more active in the area of advanced biofuels so this is the place one should invest.

The regulatory framework that exists in the EU to date is indeed not convincing investors. There is, of course, R&D money available to develop new technologies but compared to the sums of money available in both the U.S. and Brazil, it is all rather modest.

Then, of course, there is the so-called double-counting instrument. So far, it has delivered a boost for used cooking oils and animal fats but not for getting cellulosic ethanol off the ground.

It is painful to see that EU companies are true champions in getting the technology right and then cross the pond to invest in commercial plants. A very good example is the GranBio project in Brazil: EU process technology, EU enzymes and EU yeast combined with Brazilian feedstock and money. The CEO of this company does not make secret what the market will be: U.S. and Brazil. The Brazilian government is not supporting cellulosic ethanol for domestic purposes. The demand is created elsewhere. 

We see the same happening in the U.S. where EU technology is amongst the frontrunners of getting cellulosic ethanol produced. If it continues like this, the EU will be just an exporter of cellulosic technology and an importer of the ethanol.

If the EU wants to avoid becoming entirely dependent on cellulosic ethanol, imported change is needed now. EU regulators still can get it right but it requires for once thinking out of the box, not more of what we already have. We definitively need to go beyond the stage of pilot projects. It is about deploying what we have and that works.

So, no accountancy tricks like double and quadruple counting. It will make the volumes too small to have major investments. Much better is a separate mandatory target for this type of biofuels.

Policy should be holistic and consistent both at EU and national level. Since cellulosic ethanol will provide great opportunities for agriculture (growing energy crops) and regional development, biofuel policy should go beyond being a mere energy- or greenhouse gas emission-saving policy. State aid measures should be generous to obtain the boost at feedstock-collection level as well as bringing technology to deployment. Also fair taxation vis-à-vis fossil fuel is crucial, such as applying a CO2 tax, which will make biofuels more competitive than fossil fuel.

But, most importantly, policymakers and decision makers need to guarantee that policy will not be changed within 5 years after its adoption. Considering the high capital expense and operating expense costs for these types of plants, support policy needs to be in place at least 10 years.

Europe needs to get its act together quickly. The time is now to construct a regulatory framework that will lead to investment in Europe itself instead of other places in the world. As far as the regulatory framework is concerned, Europe is at a crossroad.

Author: Robert Vierhout
Secretary-general, ePURE
Vierhout@epure.org