* EU already has enough biofuel refining capacity
* Indirect land-use change dilemma goes on
* Non-crop feedstock requires higher investment
By Barbara Lewis and Ivana Sekularac
BRUSSELS/AMSTERDAM, Aug 15 Drought-stricken
crops and record-high grain prices have strengthened critics of
the European Union biofuel industry, adding fears of a food
crisis to their claims that it does not ultimately reduce carbon
The renewed anxiety adds to pressure on the EU's executive
Commission to forge a deal this year to help ensure that EU
biofuels do not clash with food production or the environment.
Such an agreement would remove some of the uncertainty that
has hung over the multi-billion euro bioenergy industry during
years of debate.
The U.N.'s Food and Agriculture Organization last week
called for a suspension of U.S. ethanol quotas as a response to
the impact of the worst U.S. drought in more than half a century
on corn supplies and prices.
Ahead of a U.S. election, immediate change is unlikely.
But the polemic highlights concerns that EU
goals also stoke commodity volatility because they exaggerate
inelasticity of demand.
"The U.S. situation should be a warning for the EU that our
inflexible biofuel mandate can lead to food price volatilities,
especially as we are currently converting 65 percent of our
vegetable oils into biodiesel," Nusa Urbancic, programme manager
at campaign group Transport and Environment, said.
In the European Union, far more than in the United States,
the raison d'etre of biofuel is to lower carbon emissions.
Urbancic and many other campaigners doubt it achieves that.
"Science has also shown that biodiesel can be worse for the
climate than conventional oil, once indirect impacts on forests
and peatlands are included," she said.
Action plans drawn up by EU member states predict that
bioenergy, including biomass for power generation and biofuel
for transport, will provide more than 50 percent of the EU share
of renewable energy as part of 2020 climate goals.
Use of biodiesel - dominant in Europe, while ethanol
prevails in the United States - is expected to double by 2020 to
19.95 million tonnes of oil equivalent (mtoe) from around 10
mtoe in 2010.
The EU already has enough refining capacity at more than 22
million tonnes to cope with the projected doubling in biodiesel
demand, according to Rabobank.
But it faces daunting challenges in coming up with the
investment and technology needed to move to feedstock, such as
weeds, grass and waste stems, leaves and husks, that would take
the pressure off grain supplies for food.
It also needs to find inputs that would no longer result in
the clearing of environmentally-sensitive forests and wetlands
to plant fuel crops, an issue known as indirect land use change
"When you look at the cost of it, the future is not bright.
That's a very complicated field," Thomas Mielke, head of global
oilseed research group Oil World, said.
The costs of moving to new feedstocks are hard to specify
because of variables including volatile commodity prices.
"You can compare it with iPad; when it first came out, the
price was much higher. But now the price has come down because
of large-scale production," Rabobank analyst Justin Sherrard
The European Commission has said it opposes anything that
inflates food prices. What it hasn't worked out
is how to ensure that its own biofuel policy does not have that
EU sources have said the Commission will attempt to get
agreement before the end of the year on how to measure ILUC.
The aim is to clarify the impact of biofuel policies on
displacing food crops or driving unwelcome environmental change.
Talks have so far failed to deliver a clear way of assessing
the full climate impact of using biodiesel made from European
rapeseed and imported palm oil and soy beans, which scientists
say do not prevent climate change and could accelerate it.
For now, Energy Commissioner Guenther Oettinger has opposed
raising a target of deriving 10 percent of transport fuel from
biofuels, as part of an overall goal to get 20 percent of energy
from renewables by 2020.
For an industry keen for investment certainty, that means
such policy predictability as there is expires in 2020.
Apart from biofuels, bioenergy includes biomass, most
commonly made up of wood pellets, for power generation.
It too has been overshadowed by criticism of its
environmental credentials. But some say it has
become a better economic bet than biofuels.
"I think the debate is shifting away from ethanol, and the
focus is more and more on biomass opportunities that are
profitable and less contentious," Tenke Zoltani, investment
manager at Islan Asset Management in Geneva, said.
Drax Group Plc, operator of Britain's largest coal
power station, has said it was moving forward with its plans to
become a mostly biomass-fuelled generator.
At the same time, commodities giant Cargill
opened in June a new starch-based ethanol plant in Bergen op