Trans-Atlantic Trade-Offs

FROM THE SEPTEMBER ISSUE: The EU's opportunity to grow European ethanol by aligning trade policy with its environmental goals.
By Emmanuel Desplechin | August 13, 2019

Eager to claim a political victory before leaving the presidency of the European Commission, Jean-Claude Juncker pushed to secure a trade deal between the European Union and the Mercosur bloc of South American countries. The effort paid off, but at a potentially significant cost for Europe’s ethanol industry and farming sector.

Now more than ever, it will be crucial for policymakers to rethink long-term energy and climate strategy in a way that creates an EU ethanol market big enough to accommodate a flood of imports and sustain an important domestic industry. The rewards will be significant progress in the fight against climate change and a boost to the EU economy.

Some backstory on the deal: The EU-Mercosur trade agreement had been bogged down in negotiations for 20 years over concerns about its impact on European farmers. Those concerns included some daunting numbers for the EU ethanol industry.

As agreed, the deal will open the EU market to annual quotas of Brazilian sugarcane ethanol: 450,000 metric tons of duty-free ethanol for chemical uses, and 200,000 metric tons of ethanol for all uses at a much-reduced duty. That was a slight increase from the initial offer of a yearly quota of 600,000 metric tons at reduced duty that had been on the table until a last-minute push to finalize the agreement.

Why are those numbers so significant and disproportionate?

The offer of 600,000 metric tons was first made in 2004, based on a fast-growing market forecast that assumed a stable and well-managed EU biofuels policy. Needless to say, that has not materialized. Even if the 600,000-metric-ton offer had not been increased, it was already a better deal for Mercosur countries today than it was 15 years ago. The decision to increase both the offer and the access conditions has made its impact even more devastating.

But there’s more at stake here than just one industry’s survival. In agreeing to open its markets to Brazilian ethanol, the EU is contradicting its own efforts to increase domestic renewable energy sources in transport, killing incentives to invest in advanced ethanol, and making life even tougher for Europe’s already struggling farmers.

The Mercosur deal isn’t the only setback for the ethanol industry on the EU trade front. The EU’s recent decision to repeal antidumping duties on fuel ethanol imports originating in the U.S. also risks having serious consequences for the entire value chain of the European renewable ethanol industry, which accounts for 55,000 direct and indirect jobs in the EU. It would also affect EU climate ambitions by favoring U.S. ethanol, whose greenhouse gas (GHG) savings do not match those of European ethanol.
These actions come as other key U.S. export markets, including Brazil, China, Peru and Colombia, have introduced measures to protect themselves from unfair U.S. ethanol exports. This increases the risk that U.S. exporters divert exports previously targeting these countries to the EU.

The negative impact of a surge in U.S. fuel ethanol exports to the EU would be felt not only by the European renewable ethanol industry, but also by European agriculture. It would hit European farmers at a time when the EU is proposing to drastically cut the budget and support for the sector under the Common Agricultural Policy. The U.S. has in parallel increased its support for the agricultural sector through the updated five-year farm bill that enhances the commodity programs and crop insurance tools for U.S. farmers.

Still, while the EU-Mercosur agreement and repeal of antidumping duties on U.S. ethanol imports deal a serious blow to Europe’s ethanol industry, it doesn’t have to be a fatal one. In fact, EU policymakers can still make it a win-win by acting quickly to grow the European ethanol market to accommodate a flood of imports.

That means aligning the EU’s environmental and renewable energy with its trade policy by, for example, ensuring that the EU’s long-term decarbonization ambitions include a stronger uptake of sustainable biofuels such as ethanol from crops and advanced feedstock. To achieve them, policymakers must do a better job of creating a growing market environment in which Europe’s ethanol industry can compete on a level playing field and, as part of the transition to the bioeconomy, contribute to the urgent fight against climate change.


Author: Emmanuel Desplechin
Secretary General
ePURE, the European Renewable Ethanol Association
desplechin@epure.com