Global Trade and Environmental Impact Study of the EU Biofuels Mandate

On 23 April 2009, the European Union adopted the Renewable Energy Directive (RED) which included a 10% target for the use of renewable energy in road transport fuels by 2020. It also established the environmental sustainability criteria that biofuels consumed in the EU have to comply with. This includes a minimum rate of direct GHG emission savings (35% in 2009 and rising over time to 50% in 2017) and restrictions on the types of land that may be converted to production of biofuels feedstock crops. The latter criterion covers direct land use changes only. The revised Fuel Quality Directive (FQD), adopted at the same time as the RED, includes identical sustainability criteria and targets a reduction in lifecycle greenhouse gas emissions from fuels consumed in the EU by 6% by 2020. Moreover, the Parliament and Council asked the Commission to examine the question of indirect land use change (ILUC), including possible measures to avoid this, and report back on this issue by the end of 2010. In that context, the Commission launched four studies to examine ILUC issues, including the present study. The primary objective of this study is to analyse the impact of possible changes in EU biofuels trade policies on global agricultural production and the environmental performance of the EU biofuel policy as concretised in the RED. The study pays particular attention to the ILUC effects, and the associated emissions, of the main feedstocks used for first-generation biofuels production.

This is the only study, out of the four launched by the Commission, that uses a global computable general equilibrium model (CGE) to estimate the impact of EU biofuels policies, in this case an extensively modified version of the existing MIRAGE model. Primary among major methodological innovations introduced in the model is the new modeling of energy demand which allows for substitutability between different sources of energy, including biofuels. The underlying global Global Trade Analysis Project (GTAP) database has been extended to separately identify ethanol (with four subsectors), biodiesel, five additional feedstock crops sectors, four vegetable oils sectors, fertilizers, and the transport fuel sectors. This extension has been introduced using innovative tools to ensure the consistency in both value and volume for the sectors of interests. The model was also modified to account for the co-products generated in the ethanol and biodiesel production processes and their role as inputs to the livestock sector. Fertilizer modeling was also introduced to allow for substitution with land under intensive or extensive crop production methods. Finally, another major innovation is the introduction of a land use module which allows for substitutability between land classes, classified according to agro-ecological zones (AEZs), and land extension possibilities. We assess the greenhouse gas emissions (focusing on CO2) associated with direct and indirect land use changes as generated by the model for the year 2020, and separately quantify the marginal ILUC for each feedstock crop.