ENVIRONMENT AND TRADE IN A WORLD OF INTERDEPENDANCE.

Transcription

1 ENVIRONMENT AND TRADE IN A WORLD OF INTERDEPENDANCE.

2 Financial support from Mistra and the Norwegian Research council is gratefully acknowledged Renewable energy support and trade - the case of biofuels for transport Håkan Eggert and Mads Greaker University of Gothenburg Entwined The promise and peril in Green industrial policy and voluntary sustainability initiatives. Hotell Hasselbacken, Stockholm. November 4, 2013

3 Motivation Policy makers in Europe and America want to reduce consumption of oil in the transport sector Energy security / import dependence Support farmers Climate change

4 Motivation Policy makers in Europe and America want to reduce consumption of oil in the transport sector Energy security / import dependence Support farmers Climate change Biofuels are a near-ripe technology A myriad of policies are introduced Fossil fuel taxes and carbon prices Blending mandates Tariffs on imported biofuels and production subsidies to domestic biofuels

5 Biofuels may be a key technology IEA Nordic Energy Technology Perspectives (2013): Biofuels will play a significant role in the future transport sector in all the Nordic countries. The share of biofuels of total fuels used for transport by 2050 varies from some 25% in the 2 C Scenario (2DS) to 70% in the Carbon- Neutral high Bioenergy Scenario (CNBS).

6 Global Biofuels production Global Biofuels production 000 tonnes oil equivalents Global Biofuels production 000 tonnes oil equivalents BP review of world energy, 2013

7 However, there are many obstacles Biofuels production compete with food production Imported biofuels may imply increased green house gas emissions in countries of origin Direct and indirect land use change lead to high carbon debt

8 Global Biofuels production Global Biofuels production 000 tonnes oil equivalents Global Biofuels production 000 tonnes oil equivalents BP review of world energy, 2013

9 Our research shows I: The most urgent measure is always to get a price on carbon A blending mandate is a tax on fossil fuels and a subsidy of biofuels. Revenue neutral and politically feasible, popular! 1 st generation biofuels do not bridge the gap to 2 nd generation. No need to increase general blending mandate levels. Public support should be redirected from 1st generation biofuels to 2nd generation biofuels; in particular, cellulosic ethanol. Support in order to reach optimal levels of R&D, learning and economies to scale.

10 Our research shows II: Little support for tariffs. EU should consider a negative tariff on Brazilian ethanol! To avoid leakage. Import of biofuels to countries with a climate target from countries without a climate target should be accompanied with a combined standard and border tax. A blending mandate delays consumption of fossil fuels and the social cost of climate change is likely to go down even if increased biofuel use may lead to a carbon debt.

11 2nd generation biofuels Feed-stock can be fast growing grasses, waste from forestry and agriculture etc. much less competition with food production Two types: a) Biodiesel derived from cellosic feed stock by a Fischer-Tropsch process b) Bioethanol derived from breaking down cellulosic material to sugars and fermenting According to literature survey and interviews with technology experts the prospect for technological development are much higher in b)

12 Policies Welfare generally benefits from supporting technological development Such support can be given as direct subsidies to R&D and various forms of market support in early stages of introduction Both the EU and the US supports R&D on 2 nd generation biofuels Only the US has targeted market support to 2 nd generation biofuels EU policy instruments such as general biofuel mandates, tariffs and other trade barriers and tax rebates; all support 1 st generation to the same degree as 2 nd generation The result may be that 2 nd generation may be locked out

13 Trade in biofuels Production and use of biofuels also generates green house gas emissions: When virgin land is cleared for biofuels crops (direct land use change) When fertilizer is used to boost yields (N 2 O emissions) When the biofuel crop is harvested, transported and processed And if, biofuels growing leads to new clearing of land for food production (indirect land use change) Most of these sources are taken care of if production happens within a country with a climate target and a climate policy That is, by choice of land, crops and energy input emissions can be greatly reduced, e.g. Brazilian ethanol In countries without a climate policy production of biofuels does not necessarily happen in an emission effective way (e.g. Palm oil production)

14 Carbon leakage Definition: when a country takes action to reduce emissions from its jurisdiction, emissions as a result increase elsewhere Example: Sweden introduces a blending mandate for biofuels, and in order to fulfill the mandate imports palm oil from Indonesia. Emissions from Swedish jurisdiction will decrease, but emissions in Indonesia may increase if tropical forests are cleared for new palm oil production Such effects may be reduced if the importing country introduces: A standard emission per unit of energy content A tariff contingent of the standard The standard should be based on country performance to avoid shuffling, i.e., not only based on the production exported.

15 Carbon debt In order to reach high targets for biofuels e.g. Nordic energy technology perspectives, we cannot avoid carbon debt from new land clearing Analysis of biofuels policies so far has not taken into account the interaction with the oil market We look at profit maximizing oil resource owners that plan their extraction of oil dependent of biofuels policies Questions: How will the rate of extraction depend on the biofuels policy? To what extent does it matter whether only some countries has a biofuels policy? How is social climate change cost impacted when we take into account both carbon debt and the responce of oil resource owners?

16 We find Market effects: A blending mandate postpones fossil fuel extraction A subsidy to biofuels reverses the effects of the blending mandate Climate cost effects Even if biofuels create a large carbon debt, increasing a blending mandate will in most cases decrease climate change costs Welfare effects Without technology development, mandates are inefficient measures But mandates capture oil rents

17 Example Emissions from biofuels (only LUC): Cellulosic ethanol 4200 kg/ha*y LUC emissions t CO2/ha Ethanol 5.9 kg CO2/kWh Gasoline 0.27 kg CO2/kWh Initial cost of carbon $50 2% growth Assume mandate 0.1 to 0.2, does the mandate reduce climate costs? Yes, definitly. Is it possible to obtain the same reduction in climate costs by a blending mandate as with an emission tax? Yes, if mandate is 48%

18 Extraction paths

19 Most important is a price on carbon Conclusions Little support in favor of increased general blending mandates. Public support motivated to 2 nd generation biofuels EU should abandon tariffs on biofuels like US and Brazil (2012), given that carbon caps are introduced in the US Import from non-carbon restricted countries to carbon restricted countries should be accompanied with a combined standard and border tax. A blending mandate reduces the social cost of climate change despite increased carbon debt from biofuel production.