Biofuels in Europe at the Crossroads Implications for your business

Transcription

1 Biofuels in Europe at the Crossroads Implications for your business 1. Introduction There are a number of key issues facing the EU biofuels sector going forward which suggest that the sector has reached a crossroads from which it can either move forward in a positive sense or at best stabilise and decline. For biodiesel which remains the largest contributor to biofuels supply in the EU the outlook has been clouded for some years ever since the support for the sector in Germany, by far the most significant producing country, was largely withdrawn by the German government and doubts about sustainability of the feedstock production continue to be raised in many quarters. In addition prices in the sector were undermined for extensive periods due to the import of cheaper subsidised biodiesel from the United States. For ethanol since the implementation of the Renewable Energy Directive (RED), which set a mandatory minimum target at a 10% share of renewable energy in transport fuel by 2020, there has been investment in EU ethanol production capacity, in spite of the generally unfavourable investment climate due to the economic downturn, and EU fuel ethanol output has increased. However, fuel ethanol use has lagged behind this increase in capacity, while at the same time trade loopholes which allowed imports of ethanol blended with gasoline (primarily from the USA and Brazil) to enter the EU at a lower tariff rate undercut EU prices and periods of high and volatile feedstock prices have also undermined profitability. In addition, the issues of sustainability within the framework of the Renewable Energy Directive and the potential implications of indirect land use change (ILUC) have combined to create a climate of general uncertainty within the industry. In September 2012 in a major U-turn the European Commission proposed to move the goalposts by altering the nature of the mandated targets and proposing to cap at 5% the contribution of 1 st generation biofuels based on sugar, cereals and vegetable oils to the EU s 10% target for renewable energy in the transport sector by More recently the EU and the US announced that they were to negotiate a free trade agreement which could potentially cut tariffs on ethanol in future. At the same time there is the potential that for ethanol at least the 10% blendwall for ethanol that currently exists could be breached via the development of E20/E25 compatible engines thus potentially expanding the market in future. The outcome of these developments and discussions has potentially profound impacts for the EU biofuels supply chain from the farmer to the fuel consumer.

2 2. Understanding the key issues The proposed changes to the RED targets are currently the subject of extensive debate within the EU Council of Ministers and the European Parliament with the various committees discussing this in the Parliament proposing several hundred amendments to the original Commission proposal. Understanding the positions of the many parties to the debate ranging from the Member States themselves to the stakeholders all along the supply and usage chain from the farmers to the consumers and environmental NGOs is critical to understanding likely outcomes and the impact of these. At the same time, the sector as a whole has been challenged by the entry into Europe of imported supplies in the form of subsidised or other exports which have entered the EU without paying the normal tariffs. Thus in the biodiesel sector significant exports entered under the so-called splash and dash arrangements and on the ethanol side ethyl alcohol entered the EU in blends paying a lower rate of duty. These imports seriously undercut the market and while the EU has taken action to close a number of these loopholes they remain a challenge for the sector going forward. Thus recently a biofuels industry body has called on the European Commission to investigate Finland over alleged circumvention of ethanol import duties. The European Renewable Ethanol Association (epure) suspects that US ethanol imports are avoiding EU duties by entering the bloc through Finland and paying the duty applicable to chemicals rather than denatured ethanol. The European Biodiesel Board (EBB) is awaiting the outcome of a similar complaint against Indonesia and Argentina over biodiesel imports. Conversely Argentina has launched a challenge at the World Trade Organisation (WTO) against EU rules on importing and marketing biodiesel. The complaint applies to EU measures - used by Belgium, France, Italy, Poland and Spain - to promote renewable energy and the introduction of a mechanism to control and cut greenhouse gas emissions, as well as support schemes for the biodiesel sector. The reality is that while high tariff walls exist there will be a strong incentive for importers to seek to circumvent these and one question for the future of the sector is how successful they can be in terms of putting an end to such practices and ensuring market protection for the sector. The EU is also in the process of negotiating a number of key trade agreements with important potential biofuel suppliers in Mercosur (Argentina and Brazil) and notably with the US in the form of the Transatlantic Trade and Investment Partnership (TTIP) negotiation. Longer term these trade agreements potentially affect the tariffs that can apply to biofuels and thus the level of protection the sector enjoys. Understanding the likely outcomes on these negotiations is therefore critical to those interested in the longer term future of the sector. Finally while the ethanol market allows for E85 and other blends the reality is that ultimately output of fuel ethanol is constrained by the effective blendwall of 10% in conventional petrol engines and similarly biodiesel is constrained to a 7% blend. In part this is due to the reluctance of the car industry to develop engines with higher blends and the fuel suppliers to invest in the necessary

3 infrastructure. Looking forward therefore a critical issue is whether these constraints to higher demand can be overcome and what might bring about such change. 3. Key Questions to be answered by the Study This study will outline many of the key issues that account for the uncertainty in the biofuel market. The following issues will be addressed: What and when is the critical juncture in the ethanol market? The blend wall, the future of the RED, and issues facing the industry over the next few years What are potential RED policy outcomes? What policies are being sought and by whom? Will the RED stay the course or are there changes coming down the line, and if so, what might those changes look like? What are the key issues constraining the adoption of higher ethanol blends? What will it take to break through the 10% blend wall barrier? Key issues and constraints to greater E85 usage. Current biofuel market trends and issues. What are reasonable alternative Advanced Biofuel pathways? Biodiesel production constraints, including feedstocks How much of the RED mandated requirement can biodiesel help meet? Potential adjustments to the RED requirements. What do these adjustments mean for sugarcane-based ethanol imports (and other potential advanced biofuels), and can these volumes be supported? Can the EU count on Brazil or other suppliers to meet its RED targets? And how would this affect wheat-based ethanol, wheat fundamentals, and other biofuels? What do the alternative pathways imply for biodiesel producers and feedstock producers? What are reasonable alternative biofuel pathways over the next two years, and in general, how do these alternative pathways impact the following markets: Wheat, maize and sugar beet production; Vegetable oil, animal fats and other biodiesel feedstocks; Ethanol & biodiesel; Livestock; and, Fuel consumers. While many scenarios can be contemplated and examined, Agra CEAS focus is to define the more likely alternatives and to assess the direction and proportion of their corresponding impacts on the targeted sectors.

4 4. Study Deliverables Pre-Study Conference Call. An Internet-based meeting and conference call of participating clients and Informa study staff will be held to review the detailed plans for the study. This conference call will address the major study topics and enable specific client comments and interests relating to each to be noted. Interim Study Webinar. An interim study webinar will be held to present key issues and preliminary findings to all study clients as a group. Comprehensive Study Report and Presentation Materials. All participating clients will receive the full report containing all analyses, projections and supporting detail developed during the study. Clients also will receive copies of all PowerPoint presentation materials used in reporting study results. (All materials will be provided electronically.) Post-Study Webinar. A concluding webinar will be held for all clients as a group to participate with study staff in fully reviewing the findings and implications. 5. Who Should Subscribe to This Study? The issues covered in this study apply to a wide range of agriculture, food, biofuels, and energy industries, including: Agricultural commodity groups Biofuel producers Vegetable oil buyers Livestock producers and feed buyers Fuel blenders and refiners Investment banks Retail fuel consumers Ethanol and biodiesel traders. and many more 6. Study Schedule July 2013: Kick-off; pre-study conference and study begins. September 2013: Webinar of key issues and preliminary findings. October 2013: Study completed final report sent to clients. Post Study Webinar and individual presentations at client offices (upon request for a flat fee of 2,000 plus, if incurred, related travel expenses). 7. Study Fees The fees for participating in the study are 7,500. The fees include the pre-study conference and the subscriber group review webinar.

5 8. Study Team Conrad Caspari, Managing Director of Agra CEAS. Mr. Caspari is based in London, and has Masters degrees in Philosophy, Politics and Economics and in Agricultural Economics from Oxford University. He worked for the Food and Drink Industries Council and the Economist Intelligence Unit in London before joining the company in Over the years, he has gained considerable experience in the operation of agricultural policies and commodity markets (grains and oilseeds, bioenergy, meat and dairy products, wine, spirits etc.). He has directed a large number of due diligence and other studies worldwide for public and private sector clients looking at a broad range of issues relating to the EU and global market supply chain for agricultural commodities, biomass/biofuels and co-products. Conrad has been involved in the development of a global biofuels model which provides forecasts of production, consumption, trade and prices of bioethanol and biodiesel. He therefore has extensive experience of analysing projects in the biofuels and related feedstock sectors. Conrad is fluent in English, German, French, Spanish and Portuguese. Dr. Edward Oliver, Senior Consultant. Dr. Oliver has a PhD in Agricultural Economics and Business Management from Imperial College London and an MSc in Farm and Rural Business Management from the University of Aberdeen, in addition to numerous other agricultural, economics and business qualifications (PG Dip., BSc and HND). Edward specializes in evaluating investment opportunities and assessing the economic and business impact of changes in policy and markets for multinational corporations and institutional clients. He works extensively on research, analysis and due diligence projects for clients in all areas of the arable (sugar, grains, oilseeds and proteins) and bioenergy (biofuels, biomass and biogas) supply chains. Recently, he has been working with a number of asset managers providing advice and due diligence on agricultural and bioenergy value chain investment opportunities throughout the world, including the world's largest diversified global farmland fund. Edward has a long track record working with a number of Universities providing distance learning education to students worldwide at MBA and MSc level on a range of economics, business management and agricultural programmes. Clifford Biggs, Consultant at Agra CEAS Consulting. Based at the Centre for Energy and Agri-food Studies in the UK Mr. Biggs is an economist with a BSc in Agricultural Business Management from Wye College (University of London) and an MSc in Applied Environmental Economics from Imperial College London. He has undertaken a number of market analysis and due diligence projects in the agricultural commodities and biofuel sectors worldwide; including work on feedstock and biofuel production and trade data for the European Commission DG TREN; studies looking at the potential for feedstock and biofuel production in several Middle East and North African countries for the European Investment Bank; and the potential for using wheat straw biomass for electricity generation in the UK. He has considerable experience of analyzing world biofuel, industrial and beverage alcohol (including wine), sugar, grain and oilseed markets, as well as evaluating and interpreting market and policy changes and the implications for commercial strategy and institutional clients in the biofuel feedstock and co-product sectors. Prior to joining Agra CEAS, Clifford worked as an economist at the International Grains Council in London.

6 9. About Agra CEAS Agra CEAS Consulting is a specialist agri-food and bioenergy consultancy that has carried out a broad range of assignments since its establishment in Brussels in 1973, helping both public and commercial sector clients to monitor, analyse, assess, evaluate and implement policies and business strategies specifically in the fields of agriculture, trade, environment, food and drink and bioenergy. Agra CEAS is a joint venture between Informa and Imperial College, London and these unique linkages enhance our ability to provide specialist and local advice and analysis by providing us with an approach that combines in-depth knowledge and experience with the rigour of a world class academic establishment operating within a commercial environment. More generally, Agra CEAS Consulting has a long track record working worldwide with both public (WTO, OIE, FAO, European Commission etc.) and commercial sector clients throughout the agrifood supply chain on trade related issues and their implications for the agri-food and drink sectors. Our work for international food and drink companies, bioenergy companies, trade associations and financial institutions has involved a variety of tools including forecasting, as well as feedstock, logistics and market analysis for due diligence assessments.

7 10. ENROLLMENT FORM Yes, I want to receive the special multi-client study, entitled Biofuels in Europe at the Crossroads --- Implications for your business The cost of the study is 7,500. Return to Agra CEAS via Fax to +44 (0) Please have someone contact me to provide further information. Name: Signature: Title: Company: Street Address: City, State, Postcode: Telephone: Fax: Address: Please note this is a multi-client study and is intended only for internal use of client subscribers and not for public distribution. Please feel free to contact us with questions: Conrad Caspari Edward Oliver Managing Director Senior Consultant Agra CEAS Consulting Ltd. Centre for Energy and Agri-food Studies The Brand Building, Briar Close, Wye Fax: +44 (0) Phone: +44 (0) conrad.caspari@ceasc.com or edward.oliver@ceasc.com