Assessing the impacts of the EU bioeconomy on third countries

The updated EU Bioeconomy Strategy of 20182 reinforced the importance of enhancing the knowledge on the ecological boundaries of the bioeconomy at EU and global level. It is recognized that the global context is highly relevant to align the EU bioeconomy targets with world-wide sustainable development goals. To achieve its decarbonisation targets and boost the bioeconomy, the EU will inevitably consume more biomass. The EU’s own biomass resources will meet part of the demand although these ambitious targets will also require reliable and sustained access to third country suppliers.

Brazil is a key player in the global climate agenda since it is home to the largest tropical forest and the seventh largest emitter of greenhouse gases (GHGs), mainly due to deforestation and agriculture expansion. From the perspective of the EU, Brazil is also the biggest exporter of agricultural commodities and its second trading partner overall. The environmental impacts arising from European consumption of bio-commodities are already evident in Brazil, and may become more pronounced under a weakened environmental governance scenario. To integrate its goal of curbing climate change with the promotion of world-wide sustainable development, the EU needs to guarantee the sustainability of its supply chains also by ensuring that trade between Europe and Mercosur respects strict environmental standards. Until now, the lack of clear environmental and social criteria associated with the production of traded biocommodities has hindered the definition of an internationally agreed approach to monitor the compliance of third country supply with EU standards. The recast Renewable Energy Directive (REDII) made a step in this direction by setting environmental criteria for conventional biofuel feedstock production, even though the final definition of these criteria and the technical rules to assess compliance with them remain under discussion.

The tariff-rate quota (TRQ) for Brazilian ethanol has long been a sticking point in the EU-Mercosur trade-talks: the European offer of 600 thousand tonnes (ca. 760 million litres) has been deemed too low by the Brazilian delegation, whose request was for one million tonnes (ca. 1.3 billion litres). This ex-ante study assesses the potential impacts on land use changes, and associated GHG emissions, in Brazil resulting from increased EU demand for ethanol, and draws evidence-based conclusions to verify the compliance of sugarcane feedstock production with the REDII environmental criteria, by combining the computable general equilibrium model MAGNET with the land use model of Brazil OTIMIZAGRO. In the baseline scenario (business as usual, BAU), the main market drivers of EU demand are economic growth and population projections to 2030 and the progressive implementation of the 1st and 2nd generation biofuel mandates. The “high-import scenario” (phase-out biodiesel scenario, POB) deviates from the BAU by eliminating EU imports of palm oil from Asia by 2020, and progressively substituting biodiesel with bioethanol, leading to greater EU dependence on imports from Brazilian bioethanol. Projections for other crops’ expansion (including soybeans), plantations and deforestation scenarios have also been included to provide a more comprehensive picture of plausible outcomes for Brazilian land use changes from 2017 to 2030.

The results reveal that, under the BAU scenario, the Brazilian supply of ethanol reaches ca. 51.5 billion litres by 2030 (from an estimated 33 billion litres in 2018), of which only 0.18 billion litres are exported to the EU (i.e. 7% of Brazil’s ethanol exports). With the ethanol supply in Brazil rising to 52.2 billion litres under the POB scenario, Brazil’s export volume to the EU also rises rapidly to ca. 1.1 billion litres – close to the Brazilian TRQ request – representing ca. 30% of Brazil's total exports. To meet these demands the sugarcane area would increase to between 14.6 (BAU) and 14.8 (POB) million hectares by 2030, with a marginal difference in terms of land use changes and GHG emissions between the scenarios. Sugarcane expansion into Amazonian and Cerrado (savannah-like) native vegetation is marginal (less than 2%) resulting in limited forest biomass loss and associated GHG emissions. The conversion of other croplands (including food crops) to sugarcane is also negligible and does not displace their production elsewhere or affect other crop markets. Most of the sugarcane expansion occurs at the expense of pasturelands (ca. 97%) in the Southeast and Midwest regions. Conversion of pasture to sugarcane and achieving the expected yield require the application of fertilizer and lime, which represent the highest source of GHG emission from sugarcane cropping. Nonetheless, restoring pasturelands could avoid further forest clearance and associated high GHG emissions from changes in biomass carbon stock, thereby representing an effective way to satisfy growing domestic and international ethanol demand while helping to achieve Brazil’s mitigation targets.

This study points out that sugarcane feedstock production could comply with REDII environmental criteria under both scenarios, given its marginal expansion into high carbon stock lands and limited displacement of other crops. Moreover, even though most of the sugarcane expansion is into pasturelands, it is possible – but far from certain - that new forest clearance in the northern regions is linked to the displacement of pasture from the Southeast and Midwest (uncertain risk of indirect land use change).

By comparison, in the same period, production of soybean – the largest crop in Brazil, mainly used for animal feed – is projected to expand considerably into the native vegetation of the Amazon (ca 7%, i.e. 0.9 million hectares) and the Cerrado (ca 6%, i.e. 0.7 million hectares) resulting in high GHG emissions from biomass loss, not to mention that most of the soybean expansion occurs in pasturelands in the Midwest and Northeast regions, leading to potential pasture displacement and new forest clearance in the nearby Amazonian and Cerrado biomes, as well as significant loss of soil carbon stock from conversion of the pasture itself.

Accounting for all land use changes (i.e. the main 14 crops, plantations, forest regrowth and deforestation), the country’s cumulative net GHG emission balance rises steeply between 2017 and 2030, putting the Brazilian contribution to the Paris Agreements at risk, whilst the difference between the country’s Nationally Determined Contribution (NDC) targets by 2030 (ca. 22 million CO2 tonnes) and our results is approximately an 900 million CO2 tonnes. The higher emissions due to increasing deforestation rates – linked to lax enforcement of the Forest Code (the principal law regulating forest conservation in private properties) – will have to be compensated by large mitigation efforts in other economic sectors so that Brazil can meet its NDC targets.

Understanding the ecological boundaries of the bioeconomy is one of the key-actions of the updated EU Bioeconomy Strategy of 2018. This includes quantifying the spillovers of EU trade with the main biomass suppliers, like Brazil, to assess the potential impacts of the EU bioeconomy on global sustainable development goals. The results reveal that sugarcane feedstock production could have limited impacts on GHG emissions through land use changes and farming practices, even under conditions of high EU demand for ethanol – a sticking point during the last EU-Mercosur trade talks. The conversion of pasturelands to sugarcane could represent an opportunity for the Brazilian sugar industry to meet the rising demand for ethanol and sugar while achieving sectoral mitigation targets as well as compliance with the EU's environmental criteria. Pasture displacement towards northern regions due to sugarcane expansion is possible but highly uncertain, and could be avoided through investments in cattle ranching intensification. In contrast, large-scale soybean expansion could lead to further loss of Amazonian forest and Cerrado native vegetation, through direct and indirect land use changes, i.e. pasture displacement.

From 2005 to 2012, Brazil was able to curb deforestation and substantially reduce its GHG emissions with strong improvements in environmental governance. Our modelling results from 2017 to 2030 show that the contribution of all land use changes to country’s cumulative GHG emission balance could be an additional 900 million CO2 tonnes above the NDC target. This implies that a dismantling of Brazil’s environmental protection could threaten uncontrolled rates of deforestation in the near future, thereby risking to jeopardise compliance with the Paris Agreement. A firm commitment ensuring that a trade deal with Brazil is conditional on strict environmental criteria for agricultural commodities would be an effective way to promote responsible sustainable development and avoid further deforestation directly or indirectly linked to the expansion of farming and ranching activities, in line with the commitments of the EU “trade for all” strategy.