BIODIESEL IN THE EUROPEAN UNION: PAST, PRESENT & FUTURE

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1 BIODIESEL IN THE EUROPEAN UNION: PAST, PRESENT & FUTURE

2 Objective of this Paper The paper aims to inform the readers on the latest development in the biodiesel sector in the European Union (EU) with emphasis on the future outlook for the sector.

3 Outline of this Paper 1. The Developments in the Policy 2. Review of the EU Biodiesel Demand 3. The Drivers of Biodiesel Demand in the EU 4. Challenges in the EU Biodiesel Sector That Are Affecting Palm Oil 5. Future Outlook in the EU Biodiesel Sector 6. Strategic recommendations for Malaysian Palm Oil Industry

4 The Developments in the Policy of EU Biodiesel Sector

5 EU Biodiesel: A Look Into The Past Biodiesel is the most important biofuel in the EU, representing about 70% of the total transport biofuels market. The first biofuel was developed and used in the transport sector in the 1990s. At the time, rapid expansion was driven by increasing crude oil prices, the Blair House Agreement and resulting provisions on the production of oilseeds under Common Agricultural Policy set-aside programs, and generous tax incentives, mainly in Germany and France. EU biofuels goals set out in directive 2003/30/EC (indicative goals) and in the RED 2009/28/EC (mandatory goals) further pushed the use of biodiesel.

6 EU Biodiesel: Policy Developments At present, the Renewable Energy Directive (RED) that came into effect in 2009 is undoubtedly the main driver for the demand of biofuel in the EU. The latest proposal was passed in June 2014 and some of the main changes in the latest proposal include:- The share of energy from biofuels produced from crop-based feedstocks shall be no more than 7% of the final consumption of energy transport in Biofuels derived from waste products are counted double in the mandate. Reporting on Indirect Land Use Change (ILUC) is postponed. The Commission has until the end of 2017 to submit a report to update Member States on the latest ILUC science. If the proposal is passed, member states will have 24 months after the directive is published to implement the changes nationally.

7 Review of the EU Biodiesel Demand

8 World Biodiesel Production (MMT) The EU is the world s leading biodiesel producer with output increasing from MMT in 2013 to an estimated MMT in World Biodiesel Production (MMT) E Source: Oil World EU USA Brazil Argentina Indonesia Thailand Singapore Canada Colombia Phillipines Malaysia Other countries

9 EU: Biodiesel Production by Country (MMT) The biodiesel industry in the EU is spearheaded by Germany and France, who in total produced an estimated 4.75 MMT in 2014 or 46% of total biodiesel production in the region E Other EU Czech Republic Portugal U.K Finland Belgium Austria Spain Poland Italy France Germany Source: Oil World

10 EU: Biodiesel Production by Country (MMT) 10 Market growth for biodiesel has slowed considerably since 2009 as EU policy moves away from supporting biofuels produced from food feedstocks such as rapeseed oil. Domestic biodiesel production peaked in 2010 but has since declined ( ) because of the influx of cheaper biodiesel imports from Argentina and Indonesia E Other EU Czech Republic Portugal U.K Finland Belgium Austria Spain Poland Italy France Germany Source: Oil World

11 The Drivers of Biodiesel Demand in the EU

12 Key Drivers That Influence the Demand There are a few forces that drive the demand in the EU biodiesel sector, namely:- Vegetable oils and crude oil price differential Fiscal incentives to promote biodiesel Different feedstocks in biodiesel Biodiesel demand in the EU Price competitiveness of biodiesel against ethanol, gasoline and diesel

13 EU: Higher Domestic Biodiesel Production Curbing Import Requirements EU biodiesel production benefited from a major setback in biodiesel imports in the vicinity of MMT after the imposition of punitive import duties on biodiesel from Argentina and Brazil. The net effect was probably a decline of biodiesel consumption in the EU in 2013, as a result of partial reduction of national biodiesel mandates and double-counting of used oils and tallows.

14 Double Counting Measures and Reduced Mandates Are Affecting The Demand and Production In contrast to previous expectations, EU biodiesel peaked in 2011 and domestic production does not seem to be benefiting from increased use mandates. Double counting measures in some member states, and reduced mandates since 2013 in Spain, are having a negative impact on EU demand and production. In addition there is an increasing competition to conventional biodiesel coming from increased production and availability of hydrotreated vegetable oils (HVO). Production of conventional biodiesel in 2012 dropped by about 11%.

15 Rapeseed oil is still the dominant feedstock but its share of EU biodiesel production diminished from 63% in 2008 to 55% in Palm oil has gained its market share since 2009 due to its price competitiveness. Used cooking oil s market share has also soared as a result of the double-counting measure MMT Used/waste oil Others Tallow&Grease Sunflower oil Soya oil Palm oil Rapeseed oil Source: Oil World

16 Palm Oil Challenges in the EU Biodiesel Sector

17 Challenges Faced by Palm Oil There are several challenges that palm oil is facing in the EU biodiesel sector, which include:- The RED Greenhouse Gas (GHG) thresholds Indirect Land Use Change (ILUC) Sustainability certification Import tariffs and anti-dumping duties

18 Anti-Dumping Duties and Renewable Energy Directive (RED) In March 2009, the European Commission (EC) introduced the anti-dumping duties on biodiesel imports from the US on B20 and the duties were extended to all US biodiesel irrespective of the blending ratio in May It saw significant reduction in US biodiesel imports into the EU. This however has led to EU importing more biodiesel from Argentina and Indonesia prompting the EC to once again enforce the anti-dumping duties on biodiesel imports from these two countries on 29 May The Renewable Energy Directive (RED) requires all biofuels to have at least 35 percent greenhouse gas (GHG) savings and biodiesel produced from palm oil does not meet the criteria as the default value is set lower in the RED.

19 Future Outlook in the EU Biodiesel Sector

20 Future biodiesel demand in the EU There are four main factors that will influence the demand for biofuel in the EU:- The growth in the demand for transport fuels, for which the EU has set the mandate of a 10% biofuel blend by 2020, but a limit of 70% for first generation biofuels derived from agricultural crops. The specific mandates that may, or may not, be set by Member States for biodiesel and ethanol. The general biofuel mandate, which may be met from any biofuel, and in which biodiesel competes with ethanol. The competition from waste feedstocks which qualify for double-counting within the mandates.

21 EU: Outlook for EU Oils and Fats Production (MMT) 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 Soybean oil UCO Tallow Sunflower oil Rapeseed oil 2, Source: LMC/MPOC Report Nov 2014

22 EU: Outlook for EU Biodiesel and HVO Production (MMT) Germany France Italy Netherlands Spain Poland UK Others Source: LMC/MPOC Report Nov 2014

23 EU: Biodiesel Demand by Feedstocks (MMT) Rapeseed oil Soybean oil Palm oil Sunflower oil UCO Animal fats Others of which, imports Source: LMC/MPOC Report Nov 2014

24 The expected depletion of fossil fuels (coal, crude oil and natural gas) further indicates that the need to develop more renewable fuel sources including biodiesel.

25 Strategic Recommendations for Malaysian Palm Oil Industry

26 Strategic recommendations for Malaysian Palm Oil Industry The EU biodiesel market is unlikely to grow much before Nevertheless, there are still few opportunities to boost Malaysian exports in the EU biodiesel sector. Malaysia is not subjected to the punitive import duty on palm biodiesel; hence this should encourage more exports of PME into the region. Under the Government s regulations, all palm oil mills and existing ones should install full biogas capture or methane avoidance facilities. The default GHG saving of palm oil diesel that is made with methane capture is set at 56% under the RED which makes it qualify, if produced in a plant built before At the moment, 60 palm oil mills in Malaysia have installed this facility. Malaysian producers are also encouraged to be certified by the International Sustainability and Carbon Certification scheme (ISCC). This scheme is widely used in parallel with RED regulations, providing certified products access to the EU market.

27 MPOC Initiatives MPOC is involved in the lab consultation with PEMANDU, the agency responsible for the Economic Transformation Programme (ETP) that includes palm oil as one of its National Key Economic Areas. Customer Appreciation & Recognition Scheme (CARES) is the programme where participants attend major conferences held in Malaysia, either organised by MPOC or other parties. During this period, biz-match meetings will be organised between overseas buyers and Malaysian companies. In the past, MPOC has invited biodiesel producers from Europe to attend these events. MPOC will continue to identify potential European biodiesel producers for the future programmes.

28 THANK YOU Azriyah Azian Market Analyst Europe, Malaysian Palm Oil Council