Europe's Bold New Strategy

In the face of rising oil prices and growingly volatile trade relations with developing nations, the European Union has established a new set of priorities to bolster its economy, secure its future fuel supplies, support agriculture and curb climate change. Despite Europe's predisposition toward diesel power, experts say its fledgling ethanol industry is poised for sheer growth—and a fresh EU Biofuels Strategy supports that notion.
By Holly Jessen and Anduin Kirkbride McElroy | April 01, 2006
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You may delay, but time will not," said Benjamin Franklin, America's original diplomat and a man who cared not only about U.S. independence but that of European nations which embraced the ideals of freedom and enlightenment. And so Franklin's words, the succinct 130-year-old utterance of a man once widely revered by the people of France, applies to Europe's effort to ramp up the production and use of domestically made biofuels today.

The European Union (EU) has, in fact, been engaged in a virtual race against time to meet its aggressive biofuels ambitions. It's been nearly three years since the EU—15 member states strong at the time—adopted its Biofuels Directive, a broad and somewhat toothless policy that laid the groundwork for increasing the production and use of biodiesel, ethanol and other renewable transportation fuels. Despite its ambiguity, the Biofuels Directive was a landmark piece of biofuels legislation, and a pseudo-stride toward requiring the use of biodiesel and ethanol blends throughout the EU. The directive essentially instructed the member countries to ensure that a minimum of 2 percent of all gasoline and diesel be replaced with biofuels by the end of 2005—which did not happen—and 5.75 percent by 2010. Truth be told, progress has been slow, and just two countries met the 2005 deadline: Germany, using mainly biodiesel, and Sweden, using mainly ethanol.

The target was utterly missed, officials said, because the directive was just that—a directive—and not regulatory. In fact, biofuels accounted for just 0.8 percent of all of the EU's transportation fuels at the end of last year. For that reason and others, the European Commission (EC) decided to take serious action. After all, officials asked, if the EU was 60 percent behind its target in 2005, how would it possibly get back on track within a half-decade without a bold new roadmap?

Enter the Biomass Action Plan.

Introduced in late 2005, the Biomass Action Plan established 20 actions that were implemented at the start of 2006. It is designed to increase the use of energy from forestry, agriculture and waste materials. In particular, the EC focused on removing administrative and grid barriers for green electricity and biofuels. The EC was also motivated by the fossil fuels market. "The measures in favor of transport biofuels, in particular, are a practical response to the problem of high oil prices," Andris Piebalgs, the EC's energy commissioner, said at the time of the plan's unveiling.

This time around, however, the EC wasn't letting member states use ambiguity—a lack of details or direction—as an excuse for missing future goals. So in early February it unveiled what it calls the EU Strategy for Biofuels, a sort of supplement to the Biomass Action Plan. The strategy is both more definite and, interestingly, more global in reach than previous communications and directives from the EC. Its three principal goals are: 1) promote biofuels in both the EU and developing countries; 2) prepare for large-scale use of biofuels by improving their cost-competitiveness and increasing research into so-called "second-generation" fuels; and 3) support developing countries where biofuels production could stimulate sustainable economic growth. Seven objectives of the policy attempt to answer how the EU will meet these goals (see The seven objectives of EU Biofuels Strategy goals).

The strength of the strategy is its "cross-cutting approach" to biofuels demand and supply, says Michael Mann, spokesman for the EC's Agriculture and Rural Development branch. "The [strategy] brings together all the different facets of the discussion—environmental, agricultural, trade, development, industrial, employment, taxation and competition policies, as well as the key need for further research," Mann says. "It was not easy to find the right balance between these issues, but I think we managed it."

Politically, the strategy is opening up discussion for the EC to reevaluate the growingly outdated Biofuels Directive—and officials are talking about doing it this year. Though more member countries than not have created biofuels policies, some officials believe EU-wide mandates are necessary to enforce the use of ethanol and biodiesel. The proposed year-end evaluation could result in biofuels mandates. "Overall, one could say that this strategy has put biofuels on the political agenda [more effectively] than ever before," says Rob Vierhout, secretary general of the European Bioethanol Fuel Association (eBIO). "The effectiveness of selected measures will eventually depend on whether law will be proposed and adopted."

Born out of environmental, social policy

The EU Strategy for Biofuels follows a series of increasingly ambitious directives and EC communications focused on environmental protection and climate change largely consistent with the objectives of the Kyoto Protocol. The EU officially ratified the Kyoto Protocol in 2002. The United States did not sign on to Kyoto, but those that did—there are about 40 participating industrialized countries—have agreed to cut emissions of carbon dioxide from factories, power plants and vehicles by 8 percent (compared to 1990 levels) by 2012. With that deadline approaching, the EU found it necessary to target transportation, as opposed to industry, as the most viable sector of immediate emissions reductions. Diesel- and gasoline-powered vehicles are the source of an estimated 21 percent of all greenhouse gas emissions, the type widely linked to global warming.

Even before Kyoto, the EU played a key role in the development of a major international treaty addressing climate change, the United Nations Framework Convention on Climate Change (UNFCCC), which was formed in 1992. The Kyoto Protocol was adopted by the UNFCCC five years later. In 2000, the EU adopted the Lisbon Strategy (also known as the Lisbon Agenda, or the Lisbon Process), a plan to make the EU the "world's most dynamic and competitive economy" by 2010. This is to be achieved by transforming Europe into the world's largest knowledge-based economy through economic, social and environmental renewal, and sustainability. The Lisbon Strategy identified the need to dissociate economic growth from the use of resources by completely internalizing social and environmental costs. In other words, costs to the environment were to now be taken into account when evaluating the benefits of growth.

So how far have Kyoto nations come in meeting their 8 percent carbon dioxide reduction goal by 2012? According to Richard Kinley, secretariat of UNFCCC, Kyoto nations were "on their way to lowering their emission levels by at least 3.5 percent below 1990 levels" by the 2012 target. He said at least 5 percent reductions could be attained in the same timeframe with "extra measures."

It's about more than the environment

What's driving EU interest in biofuels overall? Several sources tell EPM it's the same three factors talked about in the United States—environmental concerns, of course, but also reducing dependence on foreign oil and increasing opportunities for farmers.

Generally speaking, Europe has paid more attention to the threat of global warming than other regions of the world, and it has set goals to reduce greenhouse gas or greenhouse-gas-producing emissions, says Dale Monceaux, senior vice president of Katzen International, an ethanol process design firm with a propensity for international and niche projects. Other issues are big drivers as well. "The value of crude has got a lot of people's attention," Monceaux says. "Where countries or companies were thinking about ethanol before, just like the United States, there's a lot more serious interest by serious parties when you are talking $60 crude—and nobody is predicting substantial reductions in the near future."

Lionel Picart, marketing manager for Novozymes in France, also points to the oil price increases as a big opening for biofuels. "The oil price going up to $60 a barrel, that was really [eye-opening] to all the governments in Europe," he says. "They are starting to say, ‘Hey, we have an issue here now, and perhaps we have to consider more seriously the directives.'"

However, while both EU nations and the United States seek greater energy independence, they may not be chasing this objective for the same reasons. Rikard Krook, marketing manager for Alfa Laval's sugar and distillery operations, says that while America's immediate concern over oil imports appears to be largely related to national security—and the foreign policy initiatives related to it—EU member states are almost purely worried about supply restrictions. "The fact that the oil is maybe on the brink of being depleted, that's the biggest fear in Europe," Krook tells EPM. "People realize that it will not continue forever, and the day it stops flowing, we have to be ready for that."

The growingly accepted idea that world oil supplies may be peaking is something Europeans are taking very seriously. "There has never been a better moment to push the case for biofuels," said Mariann Fischer Boel, EU commissioner for Agriculture and Rural Development, in a February press release. "Crude oil prices remain high. We face stringent targets under the Kyoto Protocol, and the recent controversy over imports of Russian gas has underlined the importance of increasing Europe's energy self-sufficiency."

On the other hand, not every EU-member state has the same focus. While reducing dependence on foreign oil is a big issue in some countries, others are concentrated more on environmental or value-added agriculture. Feedstocks for biofuels production would provide new outlets for European farmers affected by the reform of CAP (Common Agricultural Policy), the EU's longstanding agricultural subsidies program. In this way, European governments are looking at biofuels as a way to increase economic opportunities for farmers so subsidies can be reduced or replaced, Monceaux says. "In all candor, the EU is in a similar situation as the United States is, and probably even more so," Monceaux says. "Their ag sector has surplus capacity. They've got to find markets for this grain."

Gerhard Konieczny-Janda, Genencor International's enzyme sales manager in Europe, the Middle East and Africa, says stimulating growth in agriculture is certainly going to fuel the ethanol and biodiesel industries. And he says that's particularly true in developing countries.

As stated in the seven objectives within the three goals of the EU Biofuels Strategy, the EC wants to create biofuels opportunities for developing nations (outside the EU). The EC believes that biofuels production in these developing countries would result in economic and environmental benefits, including increasing employment opportunities, reducing energy costs and opening up potential export markets. "In particular, the production of [ethanol] could offer a feasible alternative for some sugar-producing countries affected by the reform of the EU sugar regime," states the EC's strategy report.

EC Development Commissioner Louis Michel explains the importance of the sixth objective of the strategic goals: supporting developing countries. He says biofuels production presents great opportunities for developing countries, notably those affected by the sugar reform. "Many developing countries are naturally well-placed for the production of biofuels feedstocks, particularly those traditionally strong in sugar production," Michel says. "The expanding EU market for biofuels will provide them with new export possibilities. The EU will help them maximize this opportunity with support for knowledge transfer and development of their market potential."

The role of ethanol in a diesel-dominated culture

While ethanol is by far the world's most prevalent biofuel, biodiesel rules the roost in the EU. That's simply a function of Europe's keenness of the diesel engine. According to the EC's strategy report, the EU produced 1.9 million metric tons of biodiesel in 2004, compared to only 0.5 million metric tons of ethanol the same year.

Statistics from the European Automobile Manufacturer's Association show that diesel passenger vehicles grew from about 12 percent of all vehicles in the EU in 1990 to about 50 percent in 2005. The member states of the so-called "EU 15" (the 15 EU member states before 10 additional nations were allowed to join in 2004) with the most diesel vehicles include Luxembourg at 75.4 percent, Belgium at 72.6 percent, France at 69.1 percent, and Spain at 67.8 percent. On the other hand, Finland has only 17 percent diesel vehicles, Sweden has 9.7 percent, and Greece has 1.6 percent.

In its Biomass Action plan, the EC noted the overarching European bias toward diesel vehicles but added that the EU as a whole has a greater capacity to produce ethanol than biodiesel. It would take less land, the economies of scale would be better and the possibility of increased imports from developing countries—or Brazil and the United States—remains an option. Somewhat surprisingly, the EC plans to reduce demand for diesel and encourage the use of ethanol. Plus, EC officials are talking about allowing ethanol to replace methanol in biodiesel production.

Despite the minority status of gasoline-powered vehicles in Europe, ethanol production is gaining momentum, especially in Spain and France. According to the EC's strategy report, Spain led the EU in ethanol production in 2004, with 194,000 metric tons (65 MMgy). France produced 102,000 metric tons (34 MMgy) that same year, and Sweden came in third at 52,000 metric tons (17 MMgy), followed closely by Poland and Germany. Overall, the total amount of ethanol produced in 2004 was a 25 percent increase from the previous year, and production amounts are still climbing.

Projections showed that more than 1 million metric tons (338 MMgy) of ethanol could be produced by the end of 2005, with the expectation that capacity would triple by 2007. In contrast, it was expected that capacity for biodiesel in EU countries would hit 3.8 million to 4.1 million metric tons (as much as 1.4 billion gallons) by mid-2006.

Those working in the industry are noticing ethanol's role is growing in the EU. Diesel is currently more common because it is less inexpensive and has better overall fuel economy than gasoline, Picart says. However, with the difference in price between diesel and gasoline likely to narrow—and vehicle manufactures working on engine modifications—that could change, making gasoline-ethanol blends more competitive with biodiesel blends. "We can foresee that the trend of having more and more diesel-powered cars will probably stop," Picart says.

Still, light-duty diesel vehicles dominate the European market, thus biodiesel is most commonly viewed as the answer to Europe's greenhouse gas emissions reduction target. Nevertheless, ethanol does have its share of the market; a report from eBIO shows that EU ethanol production increased nine-fold from 60 MMly (16 MMgy) in 1993 to 526 MMly (139 MMgy) in 2004.

The report, along with other sources, identified other challenges, such as limited fuel quality specifications for ethanol blends. The currently accepted specification limits ethanol to blends of 5 percent. The eBIO report also expressed concern that the state and federal incentives that exist in the United States do not exist in most EU member states. Finally, eBIO says the current lack of EU-wide usage mandates has dampened consumer and investor enthusiasm. "The most critical issue will be getting enough plants up and running in time to deliver the ethanol once we get a mandate," says eBIO's Vierhout. "As long as the future is too uncertain, companies tend to be reluctant to invest in new capacity."

The organization is also concerned that the EU would have a tough time developing a mature ethanol industry and competing on a global scale if uniform import tariffs are not put in place. However, that apprehension flies in the face of the EC's import-friendly stance. "We need to put in place a balanced trade framework, in particular for ethanol, so that domestic producers and those in the least-developed countries, as well as the major tropical sugarcane producers, can benefit from the developing European biofuels market," EC Energy Commissioner Andris Piebalgs explains.

Timely opportunities are developing for the fuel to gain more attention and credibility in the EU. The reformed sugar policy, as well as cellulose research, might enable Europe to produce ethanol efficiently from existing feedstocks. Through the CAP reform, sugar beets are now eligible for support as an energy crop. Meanwhile, an ability to utilize wheat and other small grains, prominent across much of Europe, will be a boon to would-be producers.

Euro-feedstocks

Unlike the United States, where corn is king in ethanol country, wheat, barley and rye are much more common feedstocks for ethanol production in the EU. In 2004, about 1.2 million metric tons of cereal grains and 1 million metric tons of sugar beets were used in the production of ethanol, according to the EC's strategy report. For the EU's 25 member states, this represents 0.4 percent of the total cereal grains produced per year and 0.8 percent of the total sugar beets produced per year.
Aside from the vast opportunities to utilize small grains and sugar beets in Europe, the EC would like to see EU member states invest in cellulose-to-ethanol technology. Sweden, Spain and Denmark already have cellulose-to-ethanol pilot plants on line or in the works, the report said.

Experts say the commercialization of cellulosic technology will be an important catalyst for growth in the European ethanol market. One reason for concern is that the EU might not have a big enough livestock market to handle massive quantities of small grains-based distillers grains. It's been reported that major corporations have already examined the possibility of using the coproduct—or perhaps the syrup—to generate electricity, or using it as a fertilizer.

Stakeholders optimistic

Despite the many unknowns that loom over ethanol production in Europe, the EU Strategy for Biofuels has generated a positive reaction from companies with an international stake in ethanol production. Although the targeted 2 percent market share set for 2005 was not achieved, Alfa Laval's Krook believes the 2010 goal is realistic. "It could be 2011, but I think we'll get there," he tells EPM.

In Sweden, where Krook is based, a 3 percent market share for biofuels has already been reached, exceeding the 2005 target. Krook is quick to point to an increase in EU biofuels projects to support his optimism. The company provides equipment—primarily centrifuges, heat exchangers and filtration equipment—for ethanol plants all over the world. In 1998, when Krook began working for Alfa Laval, there just wasn't a lot happening in the EU with respect to biofuels, he said. Talk, but not a lot of action, started to increase at the beginning of this decade, and today Alfa Laval is fielding inquiries about ethanol projects originating in almost every EU member state.

Katzen International's Monceaux also believes the target is attainable. Based on the company's current projects, plus inquiries it has received on potential projects, Monceaux says there is ample ongoing investment to at least get close to the target. "We've had inquiries from almost every European country you can think of," he explains.

Picart of Novozymes is also encouraged by the EC's new strategy. As one of the world's leading producers of enzymes, Novozymes is working with ethanol producers all over the world, including those in the EU, Picart says.

While acknowledging the EU's relative failure in meeting its 2005 biofuels target, Picart says the 2010 goal—5.75 percent—can definitely be reached. He says the EC has been pushing hard on EU member states to get to the finish line. "It's moving, it's moving now," Picart says. "The key years will be 2007 to 2010. You will see a lot of new plants coming on line and, of course, after 2010 it will continue, but the key years will be probably 2007 and 2008." EP

Holly Jessen and Anduin Kirkbride McElroy are Ethanol Producer Magazine staff writers. Jessen can be reached at hjessen@bbibiofuels.com or (701) 746-8385. McElroy can be reached at amcelroy@bbibiofuels.com or (701) 746-8385.