RED II – Europe’s €25 Billion Blunder

by Dick Roche (EURACTIV) ... Investments worth billions have already been written off as a result of EU U-turns on biofuels. The half-billion Euro Vivergo plant, at one point the largest industrial project in England, is a monument to confused biofuel policy.

Turning to the investment needed to realise the Commission’s objectives the EU will require more than 15 billion litres of ‘advanced’ biofuels. Producing that level of second generation biofuels will require a minimum of 150 biorefineries capable of producing 100 million litres per year.

The cost of building a single biorefinery of that scale runs to somewhere between €150-€300 million, suggesting a minimum total bill of more than €25 billion to meet the ambitions implicit in REDII.

Because of the EU Commission’s guerilla war against biofuels since the start of this decade, EU investor confidence in biofuels has been completely undermined. Banks and institutional investors who have been burned by policy changes are going to be very difficult to re-engage.

The elephant in the room is ‘where is the billions in funding needed to fulfill the REDII pipe dream to come from’?

Some have suggested the EIB might step in. To date, EIB has accounted for less than 0.1% of all capital investments in Europe’s biofuels sector.

The F.O Licht ‘World Ethanol and Biofuel Report’ issued on 19th February concludes its examination of advanced biofuels on a negative note – “so far, the performance of advanced biofuel producers is weak, even on markets with a specific mandate like the United States or other advantageous provision in the biofuels legislation, such as double counting in the EU.”

Against this background, there is no remote possibility that the level of investment needed to scale up to the implicit REDII level will be available in Europe in the foreseeable future.

Ignoring market realities, the Commission assumes, with little corroborating evidence, that advanced biofuels will be cheaper to produce and put on the market than conventional biofuels.

It ignores the prevailing low market price for conventional biofuels and for conventional biofuel feedstock and ignores the reality that there is a major market in Europe for the co-products of conventional biofuels.

It also presumes that the market price for conventional biofuels will rise while the price for advanced biofuels will fall. Again, there is absolutely no evidence to support that notion.

Another striking weakness in the Commission’s ‘analysis’ is an assumption that existing conventional biofuel refineries can easily be converted to the production of advanced biofuels. This is the equivalent of suggesting that sticking batteries in a clapped-out Volkswagen could avoid the capex needed to transition to electronic cars.

The logical place to locate a biofuel facility is as close as possible to its raw materials. Doing so cuts the transport costs and the associated environmental costs of biofuel production. A presumption implicit in the Commission’s views about collocating first and second-generation plants is that feedstock share a common geographical origin. This is at odds with reality. Again, the Commission has not engaged with the biofuels industry on this aspect of its ‘thinking’.

Finally, the Commission makes the proposition that advanced biofuel facilities are cheaper to build than conventional biofuel refineries. This proposition clashes with reality. Conventional biofuels plants have capital costs ranging from €0.10/litre for simple biodiesel to up to €1/litre for the most sophisticated ethanol plants.

The range is clear and proven over tens of billions of litres of actual capacity. In contrast, no advanced biofuel plant even comes close to the €1/litre mark, and most are very significantly higher. As a general rule of thumb, 100 million litres of biodiesel capacity costs less than 10% as much to build as 100 million litres of advanced biodiesel capacity.

Another reality that the Commission’s proposition ignores is that over the last decade in Europe, very few of the ‘advanced’ biofuel facilities that have been created have stayed open. There are more closed advanced biofuel plants in the EU than open ones.

Across the EU 500,000 hectares of arable land is being abandoned annually as farmers give up farming.

Another cost that has been overlooked in the debate is the impact that phasing out conventional biofuels will have on EU animal feed protein.

GMO-free high protein feed is a co-product of conventional biofuel production. Europe is currently heavily dependent on imported animal feed. Over the past decade, 25% of EU feed deficiency was cut by conventional biofuel production. READ MORE