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SPEECH/07/37












Andris Piebalgs

Energy Commissioner




Biofuels and Renewable Energy for tackling climate change






















Speech at the eBio General Assembly
Brussels, 25 January 2007

Ladies and Gentlemen, good morning. Thank you for the invitation to address your general assembly today.

These are important times for energy policy in general, and for renewable energy and biofuels in particular. I am sure you will be aware of the Strategic Energy Review that the Commission adopted just over 2 weeks ago. I would therefore like to take the opportunity to place biofuel policy in the context of our energy policy as a whole.

Let us start with the reasons that have motivated this focus on energy by the EU.

It seems like every week brings a new sign of climate change – no snow in the Alps, daffodils in bloom in January in the parks of Brussels. Energy is responsible for 80% of the greenhouse gas emissions that are thought to lie behind these changes.

Signs of insecurity of energy supply have so far, fortunately, been less acute. Nevertheless, last winter's worries over gas transit via the Ukraine were echoed by this winter's concerns about oil transit through Belarus. Even if the oil price has been falling, we know well that it can quickly rise again.

These developments raise two important questions for Europe:

  • Do we, collectively, want to send the world a clear signal that climate change is a serious problem - and Europe will continue to take a lead in tackling it?
  • Do we, collectively, want to send the oil and gas markets a clear signal that we will not accept increasing dependence on imports from politically sensitive areas – instead, we are prepared to do what is necessary to build up alternative sources of energy?

These are the key questions for renewable energy that are raised in the Strategic Energy Review the Commission. They are, of course, questions for the Heads of State and Government of Europe's 27 Member States. They will be high on the agenda for the Spring European Council meeting on 8th and 9th March.

But they are equally questions for society at large, for ourselves as consumers and as citizens, for industry and for civil society. The reactions of society at large will set the context in which the European Council's decisions are taken.

That is why I am glad to have the opportunity to talk with you today.

I'd like to focus on three things:

  • First, summarise how climate change and supply insecurity will get worse if nothing is done.
  • Second, set out how the Commission thinks this can be avoided, through a reinforced system of targets together with supporting measures.
  • Third, I will conclude saying something about the next steps.

How climate change and supply insecurity will get worse if nothing is done

Ladies and gentlemen,

In developing our proposals for renewable energy, our starting point was a careful analysis of trends in greenhouse gas emissions, security of supply and the use of renewable energy.

This showed that the EU27's CO2 emissions in 2020 are heading to be 4% above their level in 1990 – far different from the 15 to 30% reduction in developed countries' greenhouse gas emissions that will be necessary by 2020, if we are to have any hope of keeping the increase in average global temperatures to 2º in 2050.

The EU's oil imports are set to increase by 20% between 2005 and 2020. Gas imports are set to increase from by 90%. All the extra oil, and most of the gas, will come from the Middle East, Russia and the rest of the Confederation of Independent States.

These trends have several causes. However, one of the most important is the fact that renewable energy is not growing fast enough. We estimate that renewable energy's overall share will only reach 9 to 10% in 2010 – compared with the target of 12% that the Community has been working towards since 1997.

As for biofuels, the biofuels progress report shows that they have doubled their market share in two years, from 0.5% in 2003 to 1% in 2005. But again, this growth rate is not fast enough. The quantity achieved in 2005 fell short of the 2% reference value laid down in the biofuels directive.

The problem is that biofuel growth is concentrated. Up to the end of 2005, growth took place mainly in a few countries: only Sweden and Germany achieved 2%; among the others, only Austria, France and Lithuania achieved as much as 0.7%. And growth mainly concerned biodiesel. This achieved 1.6% of the diesel market in 2005, while ethanol only achieved 0.4% of the petrol market.

We think this situation is going to change. Most Member States have now introduced tax exemptions for biofuels. Eight have introduced biofuel obligations, and many others are considering them.

Nevertheless, we estimate that on present policies and measures, biofuels' share in 2010 will not rise much above 4%.

The Commission's proposals: a reinforced system of targets with supporting measures

Let me now turn to the Commission's proposals to face the challenge of developing renewables in the EU: a reinforced system of targets with other supporting measures

Targets

Ladies and gentlemen,

Having assessed the trends in greenhouse gas emissions and security of supply, the Commission concluded that they are not acceptable.

Action needs to be taken, at European level, to halt and reverse the trends.

What should this action be?

We thought hard both about the forms of energy use to be encouraged, and the tools that can best be used to do this.

Concerning forms of energy use, the first to be examined is, of course, energy efficiency.

As outlined in last October's energy efficiency action plan, there are numerous ways to save energy. The Commission will do as much as possible to make these things happen. However, even at the highest level of ambition, energy efficiency measures will not be enough on their own to tackle our climate change and security of supply challenges.

To do that, we will also need to switch away from oil and gas towards energy sources that have lower security of supply risks, and low or zero greenhouse gas emissions.

For many, nuclear power fulfils these criteria. For others, the risks associated with nuclear mean that its growth is the last thing we should be encouraging. Whichever of these views you hold, it is clear is that decisions about nuclear power are taken at national level – and will need to continue to do so.

Moreover, even a massive decision today in favour of nuclear could not deliver a big increase in the number of power stations by 2020. For these reasons, regardless of one's personal views on its desirability, nuclear power cannot form the sole foundation of a new European energy policy for the next 10-15 years.

From the point of view of security of supply, coal is a wonderful source of energy. Europe has plenty of coal; outside Europe, reserves are spread widely. But the greenhouse gas performance of coal is worse than that of any other fuel.

"Clean coal" technologies are being developed to solve this problem. We will accelerate research into these technologies, and take other steps to create a market for them. But there is no chance of their making a significant contribution by 2020.

Finally, the examination turns to renewable energy. Compared with the other solutions, this comes at a price – though I should add that the price is falling. But renewable energy is the only energy source with the capacity to deliver big improvements in overall greenhouse gas emissions and security of supply over the next 15 years.

Our analysis therefore concluded that in any serious European energy policy, renewable energy will have to come in from the margins and play a central role.

Turning to the tools to be used to achieve our energy policy objectives, the Commission had to reflect on whether the use of targets should continue; what their character should be; how specific they should be; and at what levels they should be set.

Targets have several advantages:

  • By defining levels of ambition for the future, they create a stable policy framework that encourages research and investment.
  • By using targets to give a clear definition to their agreements, Member States can overcome the "free rider" problem (under which all share the benefits of energy policy, but each has an incentive to leave the costs to the others).
  • By specifying outcomes without specifying how they should be achieved, targets leave room for flexibility and experimentation at Member State level.

For these reasons, as set out in the renewable energy roadmap, the Commission proposes that the EU continue with its target-based approach to energy policy.

Targets work by sending signals to markets and public bodies. The Commission is proposing that EU renewable energy targets should in future have a binding character, because binding targets send the clearest signals and bring the greatest benefits.

There is a balance to be struck between general or specific targets. General targets maximise Member State flexibility. However, the signals they send to markets are less precise and may therefore be less effective.

General targets provide good incentives to perfect existing technologies. Specific targets are better at encouraging innovation, because they reassure investors that new products will find a well-defined market in which they can be sold.

Having considered these arguments, the Commission decided to go for a mixed approach:

  • a general target for greenhouse gas reductions, aiming at 20% less emissions in 2020 than in 1990 (rising to 30% if other industrialised countries join in);
  • confirmation of the goal of reducing energy consumption by 20% by 2020, compared to what can be expected if nothing is done;
  • an overall renewable energy target for 2020, again set at the level of 20%;
  • last but not least, a "minimum target" for biofuels in 2020, set at the level of 10% of the petrol and diesel market.

You may ask what is meant by a "minimum target" for biofuels. Our idea is this.

EU legislation – to be brought forward later this year, after the European Council has expressed its view – will define overall renewable energy targets for each Member State.

These will vary, reflecting factors that include the potential for expanding renewable energy, and the present-day contribution of key technologies such as hydroelectric power.

Member States will then need to make a National Action Plan showing how they will divide up their overall target between renewable energy in electricity; renewable energy for heating and cooling; and biofuels. In general, they will have a free hand in deciding the balance between the sectors.

However, because it is subject to a minimum, each Member State's biofuels target will have to be at least 10%.

You may also ask why the minimum biofuels target should be the same for all Member States, while the overall renewable energy target will be different for each. The reason is that biofuels can easily be transported and traded – giving each Member State more or less the same access to them.

And from a motor industry point of view, we think it makes sense to plan for more or less the same level of biofuel content across the different European markets.

Perhaps you will also ask why a specific target is needed for biofuels, but not other forms of renewable energy. This is because biofuels cost more than other forms of renewable energy, yet tackle problems that cannot be addressed in any other way.

In particular, they are the only way to make a real impact on oil dependence in the transport sector over the next 15 years. They are also one of the few practical ways – alongside more efficient vehicles – to significantly improve greenhouse gas emissions from transport.

It is important to send a clear signal about the likely size of the biofuel market in the medium term, so that car makers can fit engines with the (cheap) modifications needed to cope with this, and to induce investment in second-generation biofuels.

Given the higher cost of biofuels, we concluded that these desirable things would not happen without a specific biofuel target.

I know that some of you have called for an even more specific target, for ethanol in particular rather than biofuels in general. I believe, however, that this level of prescriptiveness would be out of balance with the overall approach that the Commission is proposing to the Parliament and to Member States.

In any case, I don't think an ethanol sub-target is needed. Even a 10% minimum target for biofuels is ambitious. Without large amounts of ethanol – first and/or second generation – we see no hope of achieving it.

Other Supporting Measures

Targets, then, are at the centre of the approach that the Commission is proposing.

But targets on their own are not enough.

The renewable energy roadmap details numerous "flanking measures" to support the policy.

On the biofuels side, I would like to mention five measures:

  • First, the Commission will maintain the "balanced approach" to trade in biofuels, defined in the biomass action plan at the end of 2005. This means that policy should be designed so that European producers and third countries both benefit from the growing market for biofuels.
  • Second, the Commission will propose the modifications to the fuel quality directive that are needed to accommodate a 10% share of biofuels.
  • Third, the Commission will increase RTD support for the development of second-generation biofuels.
  • Fourth, the Commission will review Member States' support systems for renewable energy. The focus will be on the electricity sector, but biofuels will also be covered.
  • Fifth, the Commission will put forward, as part of its legislative proposal, a plan for an incentive/support system. This should encourage the use of second-generation biofuels; discourage the use of biofuel production systems that create more greenhouse gas emissions than they save; and discourage the conversion of land with high biodiversity value, such as tropical forest, to grow feedstocks for biofuels.

It may be worth saying more about this incentive/support system.

The public support biofuels because of their environmental advantages. Most ways of producing biofuels do indeed produce solid environmental benefits; however, some do not. To maintain the environmental credibility and benefits of the policy, these practices need to be avoided.

Finding a practical way to do this is, however, difficult. We need a scheme that works; that imposes only a limited administrative burden; and that is compatible with WTO rules.

This is one of the main problems we have to solve over the next few months.

Next steps

Ladies and gentlemen,

To conclude, the Commission is convinced that renewable energy in general, and biofuels in particular, have an integral role to play in Europe's future energy policy.

We have proposed an ambitious but achievable minimum target for the share of biofuels in each Member State – 10%. This is backed by supporting measures to ensure that the objective is achieved in a way that is efficient and good for the environment.

We believe that this policy will bring important benefits. By 2020, our oil imports will be lower than they would otherwise have been; greenhouse gas emissions will be less; and employment in the EU will be up.

The extra cost of this policy is hard to predict with accuracy. It will depend on what happens to the oil price, and on whether agricultural markets become more competitive. I can, however, give some examples. With oil at $48/barrel and no change in agricultural markets, the annual cost in 2020 would be about €12 billion. With oil at $70/barrel and more competitive agricultural markets, it would fall to about €6 billion.

To me, these figures make a convincing case for action. I believe they will to you too – and I believe they will also convince the Heads of State and Government, meeting on 8th and 9th March – as well as the European Parliament.

For us, the next step will be to translate these policies into a proposal for legislation.

For companies like yourselves, on whom the implementation of our policies depends, I hope the next step will be to develop the European biofuel market with even more vigour than before.

Thank you for efforts in this direction, and for your time and attention today.


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