1 Introduction Developments to date and Status Quo forecast Assessment of the EEG... 6

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2 Table of contents 1 Introduction Developments to date and Status Quo forecast Assessment of the EEG Basic questions regarding the EEG (objectives, approach, evaluation) Assessment of the current arrangements for biogas promotion Options for the further development of biogas promotion Recommendations The Statement can be downloaded on the Internet at 2

3 1 Introduction By presenting this statement, the Scientific Advisory Board is stating its position for the second time on the bioenergy policy pursued by the Federal Government. The Statement follows up on the extensive expert Statement submitted in 2007 to which reference is made here once again. 1 The Advisory Board believes that the basic assessments and recommendations made in this 2007 statement are still valid. The conversion of the global energy industry to renewable energy sources is one of the major challenges of this century. The global energy turnaround is, in principle, feasible because sun, wind, geothermal heat, hydro-electric power etc. supply far more energy than mankind needs. The actual challenge therefore lies in (a) organising an access to the plentiful supplies of energy that is as efficient and safe as possible and (b) making rapid progress in this regard within an international network, since the consumption of fossil energy sources is the main cause of global climate change. The serious accident in the Fukushima nuclear power plant injected new vigour into the debate on the right way forward in energy policy. It remains to be seen, however, where this newly initiated debate ultimately leads at international level. Some countries are expected to opt for a quicker phasing out of nuclear energy. Other countries, in contrast, have already expressed their intention to continue to develop nuclear energy. There are also indications that many countries are considering making greater use of coal on a temporary basis in order to ward off any supply constraints. The overall conditions for an effective global climate change agreement could continue to worsen as a result and it is not unlikely that this would gradually erode efforts to mitigate climate change in Germany as well. All in all, it thus seems that the global energy turnaround will not progress in a straight line, but will vary from region to region and be marked by radical changes that are extremely difficult to foresee. It is therefore all the more important to keep the goal of these turbulent developments firmly in sight: seen in a long-term perspective, there is no alternative to a conversion of the energy industry to renewable energy sources. The direct use of solar and wind energy within the portfolio of renewable energies is expected to increasingly gain ground in the second half of the century. The defining elements of this long-term scenario are: (a) much improved energy storage, (b) enhanced networking that also provides for decentralised solutions, and (c) supraregional electricity transmission. It will take several decades, however, for this long-term scenario to become established and the use of biomass (bioenergy in short) for energy production is also forecast to expand further for the time being in the transitional period. Globally speaking, this primarily concerns the biofuel sector. Given oil prices in the order of 100 US$ per barrel, biofuel production will, even without political support, be profitable in parts of the world that are suitable for this purpose. This rise in the demand for agricultural commodities will push up global agricultural prices until a new higher equilibrium price has been achieved. The expected average level of 1 Scientific Advisory Board on Agricultural Policy at the Federal Ministry of Food, Agriculture and Consumer Protection (2007): Use of Biomass for Energy Generation Recommendations to policy-makers. 3

4 world market prices will therefore, in the future, be well above the level that was customary before These high global agricultural prices that may rise even further could adversely affect important environment policy objectives (climate change mitigation, biodiversity) and place a strain on consumers and importing countries. In light of the above, German policy-makers must ask themselves whether they want to continue to formulate the expansion of bioenergy per se as a goal in itself and promote it through higher energy prices to the tune of billions to the detriment of consumers. Bioenergy is only one option from the broad spectrum of renewable energies. As storage, conversion and transportation methods become more efficient, policy-makers and economic operators will find it increasingly attractive to focus on the most efficient renewable energy sources. There are those who argue that "all" technologies of renewable energy would be "needed" in the long term (in the sense of: "should be promoted"). This is not convincing. On the contrary: a permanent broad-based promotion of inefficient renewable energy sources would be counterproductive for the intended energy turnaround. The Advisory Board therefore considers it vital that it should be ended. By presenting this Statement, the Advisory Board is stating its views on a special segment of bioenergy policy, i.e. the promotion of biogas production by means of the Renewable Energy Sources Act (EEG). The Statement was prompted by the Federal Government's plan to amend the EEG before the end of this year. 2 Developments to date and Status Quo forecast Energy generation from biogas has undergone considerable expansion in Germany in recent years. This was due to the significantly improved promotion as a result of the EEG amendments in 2004 and Until 2004, biogas from renewable resources (RR) and farm manure played a minor role. A total of only 1.1 TWh of electricity per year was thus generated. In addition, there was biogas production from sewage treatment and landfill gas that accounted for around 1.8 TWh. Whereas there has been little change in biogas production from sewage treatment and landfill gas, electricity generation from biogas, that is produced from renewable resources and slurry 2, increased more than ten times to 14 TWh by According to current estimates, silage maize intended for biogas production was grown on around 600,000 to 800,000 ha in 2010, with whole crop silage, grass or cereals covering an area of approx. 80,000 ha. Thus, a total of around 5 to 7 % of Germany's arable land was dedicated to energy maize. Altogether, some 2.1 % of electricity consumption in Germany is being generated from renewable resources. In addition to the above-mentioned electricity generation, it is estimated that between 3.4 and 7.6 TWh of heat from biogas plants is currently used. In relation to Germany's entire energy requirements, biogas covers some 1 % of the primary energy consumption of Germany (including utilised heat). 2 The term "renewable resources" is defined in Annex 2 Part II number 1 of the EEG These are plants or parts of plants which originate from agricultural or forestry operations or during landscape management. The term "slurry" is defined in Annex II number 2 of the EEG

5 Reliable figures on the substrate composition are lacking. According to estimates, in terms of the energy, approx. 10 % is derived from waste, 10 % from farm manure and approx. 80 % from renewable resources. However, these averages obscure significant regional fluctuations: whereas farm manure accounts for a share of up to 30 % in many eastern and southern German plants, most plants in the rest of the Federal Republic produce far less than 10 % of energy from farm manure. Among the renewable resources, whole crop silage and grass do play a role to some degree. However, energy has to-date been for the most part generated from silage maize. Recent developments suggest that sugar-beet may play a bigger part in the future. The distribution of biogas plants differed from region to region. The expansion in the livestock areas of north-western Germany and Bavaria was particularly strong. Critical public debates (the amount of arable land covered by maize; agricultural transport on public roads) and conflicts among farmers (compromised competitiveness of hitherto dominant lines of production) intensified notably in these regions. Such debates are also taking place in other regions, for example in connection with the large-scale plants in eastern Germany. The feed-in tariff stipulated in the EEG is composed of several bonuses that may accumulate up to a total amount of around 24 ct/kwh. A standard installation with a capacity of 500 KW of installed electric power, which has been common to-date, would have resulted in a feed-in tariff of approx ct/kwh if put into operation in 2010; this would have been made up of the following components: a basic tariff of 10.0 ct/kwh, RR bonus of 6.9 ct/kwh, slurry bonus of 2.0 ct/kwh and a bonus for combined heat and power generation (CHP) of 0.7 ct/kwh. The operational cost prices for fossil electricity from coal-fired and gas-fired power stations currently amount to 5.5 ct/kwh. Compared to electricity from coal-fired or gas-fired power stations, the electricity generated by the biogas segment of the EEG is thus approx ct/kwh more expensive, on average, or a total of around 2 billion per year. This comparison does not include the different social costs brought about by the CO 2 emissions from electric power generation. The much improved support has made it an attractive proposition since 2004 to shift from farming to this branch of production. This is illustrated by the following example: A 500 KW installation on the basis of 210 ha covered by maize, with 30 %, in terms of mass, of slurry, and 30 % use of heat produces per year approx. 17,500 kwh of electricity per hectare and earns a feed-in tariff of 19.6 ct/kwh. This corresponds to proceeds of just under 3,450 /ha. The total proceeds rise to approx. 3,550 /ha if the revenue is deemed to be 2.5 ct/kwh for utilised heat (1 million kwh corresponding to 4,700 kwh/ha). The production costs (including pay for work and capital, but without remuneration for area) add up to 2,800 /ha. The "Biogas" business model thus, at present, promises an average soil return of around 750 /ha. If the direct payments from the Common Agricultural Policy are also taken into account (the Federal average is, at present, approx. 335 /ha), it becomes understandable why land rents of over 1,000 /ha are being paid in some regions. World market prices for crop products rose to a level in 2007/08 and again in 2010/11 that was roughly twice the customary level before In view of these premium prices, conventional agricultural production also suffices to earn a soil return in the order of 5

6 1,000 /ha. The Statements about future price trends are greatly divided. Most people expect an upward price trend and significant price fluctuations. This gives rise to two different scenarios for the future: - If agricultural prices and the price expectations of potential investors stabilize at a very high average level over the years, the new construction of biogas plants will, in spite of a high level of support, be unable to compete with food production or will only have a slight edge. Only very few new installations will be built in this scenario unless support is revised upwards correspondingly. - If agricultural prices should fall again to an medium level or even to the low level of before 2006, the new construction of biogas plants would be highly profitable. If the EEG were to remain unchanged, more and more agricultural land would in this scenario be used for biogas production over the years. An upper limit is not yet in sight since open agricultural markets allow food imports to be expanded as required. 3 Assessment of the EEG 3.1 Basic questions regarding the EEG (objectives, approach, evaluation) The declared purpose of the EEG is to "facilitate a sustainable development of energy supply, particularly for the sake of protecting our climate and the environment, to reduce the costs of energy supply for the national economy, also by incorporating external long-term effects, to conserve fossil fuels and to promote the further development of technologies for the generation of electricity from renewable energy sources." (Section 1 EEG). In order to reach this objective, the EEG "aims to increase the share of renewable energy sources in electricity supply to at least 30 per cent by the year 2020 and to continuously increase that share thereafter." (Section 1 EEG). In 2010, the share of renewable energy sources in electricity supply amounted to a total of 16.8 %. This total comprised the following contributions by the individual energy technologies: 6% from wind power, 3.3% from hydro-electric power, 2.0% from solar energy, 2.0% from biogenic solid fuels, 2.1 % from biogas, 0.3% from sewage treatment gas and landfill gas, and 1.1 % from other energy sources. The previous promotion of biogas production on the basis of renewable resources (RR Biogas) ties in with the basic idea behind the EEG to foster the spread of renewable energies, including in the case of production methods that are at present not yet profitable under market conditions, but have potential in respect of the future energy supply and climate change mititgation. As has been illustrated by the example of wind energy in particular, such significant progress has been made in terms of technology over two decades that this form of renewable energy has meanwhile reached the competitive threshold in some locations. Pursuing this argument, it would not seem inappropriate to continue to provide segmentrelated promotion of renewable energies under the EEG and, in doing so, provide each 6

7 segment (biogas, wind, solar energy etc.) with precisely the funding that is required to create a sufficient incentive to attract investment in the most advanced types of installations. This would also give a chance to energy concepts that still have a long way to go before they are profitable, but that may move forward faster than other concepts as a result of breakthroughs in technology. In the face of the scale of the challenge, i.e. the conversion of the global economy to renewable energy sources and the uncertainty over future technological developments, this policy approach, if it is fleshed out correctly (see below), would definitely be justifiable over a period of a decade or two. In a longer-term perspective, this approach of "initially promoting the entire spectrum" poses a huge risk that will increase over time: it is almost inevitable that the support that had initially been intended as start-up financing will gradually become long-term support, and this also holds true for those energy technologies that prove not to be very suitable in terms of climate and energy policies. If we do not put a stop to this (and this is a difficult enough task in itself because of the well-established lobby activities), the EEG will have a counterproductive impact in the long run because the government-funded dissemination of inefficient energy concepts will tie up more and more resources in less than perfect branches of the renewable energy sector, resources that could make much greater contributions to climate change mitigation and energy supply in more appropriate areas. The following important conclusions for policy-making ensue from this: - The core idea behind the EEG should be spelt out in more specific terms. It should be clarified in the recitals of the Act that the mixture of (a) climate and energy policy objectives and (b) objectives of technological development policy brings risks as well as opportunities. What matters therefore is to grasp the opportunities while limiting the risks. The main risk lies in the fact that the EEG, if mishandled, will result in constant subsidization and a permanent expansion of technologies that are inadequate for climate change mitigation. The core objectives of the EEG should therefore be clarified as follows: (a) (Small) government-funded market segments will be created for a limited number of technology concepts. A prerequisite for this is that these concepts become competitive in the medium-term (a time horizon of years) through predictable technological innovations (core focus on technological development policy). (b) Large-scale funding that is gradually reduced over time will only be granted for technology concepts that have verifiably made great strides towards becoming profitable and could reach this point in a few years time (taking the positive effects of climate change policy into account) (core focus on climate policy). - From this perspective, it is less the competitive position vis-à-vis fossil energy sources that matters, but increasingly the competitiveness vis-à-vis other renewable energy sources or vis-à-vis other measures to protect against climate change. If, for instance, it becomes apparent that a bioenergy line cannot keep up with other renewable energy sources in spite of many years of support, the EEG aid should be terminated. The idea that the state must promote all renewable energies on a permanent basis because these energies are essentially "good" is not tenable, also from the point of view of climate policy. 7

8 - The Advisory Board welcomes the evaluation of the EEG that is provided for by the Act. This evaluation should comprise all renewable energies and include a comparative assessment. Given that security of supply in the energy sector could be achieved on the basis of imported coal, but also given that this solution would be questionable in terms of climate policy, the Advisory Board believes that the EEG is mainly justified by its contribution to climate change mitigation policy. The competitiveness or the productive efficiency of the different renewable energies should therefore primarily be assessed on the basis of the costs incurred in avoiding CO 2 emissions. All greenhouse gases should be taken into account here (CO 2 equivalents). It is absolutely necessary that the comparative evaluation of the costs of avoiding CO 2 emissions also includes the indirect effects of land use that are, to very different degrees, associated with a spread of the different renewable energy technologies. The evaluation should be carried out by bodies that are neither directly nor indirectly dependent on the success of a specific energy line (e.g. bioenergy). - The aim of the EEG should be to make the maximum possible contribution with the available resources in terms of climate and energy policy. If the EEG, subsequently, only makes a relatively small contribution despite devoting considerable resources, this cannot be considered a success. - It is very important for the assessment of the support for individual EEG segments in terms of technology development policy that it is explicitly stated when amending the EEG what specific objectives are being aimed at in promoting an EEG segment and by what date these objectives are to be reached (ex-ante assessment). It should then be clarified on the basis of associated research activities by the next EEG amendment which of these objectives have been reached and which have not. The use of vague objectives such as, for instance "Contribution to the climate policy objectives of the Federal Government" is not helpful in this regard. No specific objectives (performance enhancement goals) have to date been established for biogas in the EEG. Neither has there been any evaluation which would enable a systematic comparison between the suitability (and the progress made towards suitability) of biogas and that of other renewable energies. Care should be taken to ensure that these shortcomings are eliminated in the forthcoming amendment of the EEG in order to create a better basis for assessment for the next evaluation but one. 3.2 Assessment of the current arrangements for biogas promotion In the run-up to the EEG amendment in 2009, the meaningfulness of this policy was already being hotly debated. The Scientific Advisory Board on Agricultural Policy showed in its expert Statement in 2007 that the promotion of biogas produced using renewable resources causes CO 2 avoidance costs in the order of 300 /t CO 2 equivalents (without leakage, see below) und can thus be regarded as a very expensive element of climate change policy. This calculation was at the time based on the "German electricity mix" reference system and the related costs of electricity production and corresponding CO 2 emissions. As it appears that Germany will be forgoing the climate policy benefits of nuclear power due to other considerations, the current German electricity mix is no longer relevant as a reference. If electricity production on the basis of 8

9 coal-fired and gas-fired power stations is chosen as a reference instead, the costs of avoiding CO 2 emissions mentioned in the expert Statement are greatly reduced. Nevertheless, they still amount to around 200 /t CO 2 equivalents in the case of normal biogas production. The Advisory Board also pointed out that there were other bioenergy options that would allow us to reach the climate change goals at considerably lower cost than by conventional biogas installations. Within the biogas segment these are mainly the "pure" slurry processing plants, i.e. installations that use only slurry as a fermentation substrate. The main factor regarding these plants is the prevention of methane emissions rather than energy generation. In addition to this, the Advisory Board drew attention to the favourable potential for climate change mitigation offered by the use of straw and, in particular, timber from short-rotation plantations. The Advisory Board also showed that the promotion of bioenergy produced by arable farming had two basic disadvantages compared with other renewable energies, meaning that this form of bioenergy can hardly be expected to evolve over time into a climate protection option that can match wind or solar energy in terms of the advantages involved, for example. - On the one hand, the linking of the agricultural price level to the energy price level on a global scale (see Chapter 1 above) means that, when bioenergy is produced on arable land, the production costs of this renewable energy rise in step with the prices of fossil energy (bushel-barrel-correlation). The fact that raw materials currently account for approx. 45 % of the full costs of electricity generation from biogas illustrates the economic sensitivity caused by the potential rise of agricultural prices. - On the other hand, the progressive use of German arable land for bioenergy is increasingly likely to result in a situation where on sites outside Germany fallow arable land, grassland and woodland are converted to arable land, causing increased greenhouse gas emissions there. The intensification of global land use would also result in an increase of greenhouse gas emissions. Considering that the reduction of greenhouse gas emissions is a global policy objective, the indirect land use effects resulting from greater bioenergy production in Germany must be taken into account (leakage). This is why the Advisory Board in 2007 issued particular recommendations (a) to abolish the RR bonus for biogas promotion and introduce a slurry bonus and (b) to develop an overriding strategy for the energy turnaround which does not consider the expansion of bioenergy in Germany per se as a success but, depending on the outcome of the evaluations carried out, might possibly also allow a complete U-turn in German bioenergy policy in order to focus on other renewable energies instead. Policy-makers failed to comply with these recommendations. Instead, they raised the RR bonus again slightly in 2009 and also introduced a slurry bonus which, however, is structured in such a way that many companies only use the required minimum quantity of slurry (30 % in terms of mass) and, in other respects, continue to engage in energy generation on the basis of maize. The slurry bonus thus acts like an additional RR bonus. Strategic documents on energy and climate policies have been drawn up, but these are essentially aimed at explicitly or implicitly stipulating expansion goals for bioenergy. There has as yet been no convincing 9

10 attempts to derive objectives from the aspects pointed out by the Advisory Board in its expert Statement in 2007 (costs of avoiding CO 2 emissions, bushel-barrel correlation, leakage, ). There can be no doubt that the conditions stipulated by the current EEG, which are favourable from the investors' point of view, have caused the renewed strong expansion of biogas production since According to the Advisory Board, the current state of play can be assessed as follows: - Climate change mitigation: Biogas production makes it possible that, compared with the "only fossil energy" scenario, approx. 8.2 million tonnes less of CO 2 equivalents are emitted per year. This corresponds to approx. 1 % of Germany's CO 2 equivalent emissions. Depending on the reference system, the cost of avoiding CO 2 emissions mostly range from 200 to 300 /t (without leakage). They are even considerably higher where maize is being grown on ploughed-up grassland areas. Taking the leakage effect into account, this pushes up the cost of avoiding CO 2 emissions yet again. If renewable resources are used, plus 50 % would be realistic according to the latest findings. A significant improvement of the climate policy assessment of biogas is not yet in sight. The question that is then raised is how long the Federal Republic of Germany intends to continue to pursue this expensive option of climate change mitigation instead of pursuing cheaper options that exist inside and outside of the agricultural sector and that would allow climate change mitigation at less than one-third of these costs (cf the 2007 Statement delivered by the Advisory Board on bioenergy). - Technological development There have been marked increases in efficiency in subsegments of the production chain, for example in the breeding of high-yielding maize varieties and in improving the efficiency of engines. But overall, the impact of these improvements on the cost of energy supply has been limited, and it has been largely neutralised by price increases for substrates and the costs triggered, inter alia, by more stringent requirements for the installations. No cost-cutting route can therefore be discerned that would come anywhere close to the cost-cutting routes for wind and solar energy. - Energy supply: The share of biogas production in Germany's power supply has risen from approx. 0.2 % (before 2005, without RR biogas) to 2.1 % now (2010) and the share in primary energy production from 0.1 % to about 1 % in the same period. While biogas thus contributes much more to the security of energy supply, its still plays a minor part. Some information for comparison: the electricity generation of all RR biogas plants in Germany currently corresponds roughly to the electricity generation of 3.5 coal-fired power stations. If RR biogas were to be produced on a third of German agricultural land, a share of approx. 8 % of electricity production or approx. 4 % of primary energy production could be achieved. - Burden on energy consumers: As outlined in Chapter 2, the additional expenditure incurred compared with traditional electricity generation amounts to around 2 billion per year. - Environment and nature conservation: Biogas production is largely based on maize as a fermentation substrate. The cultivation of energy maize has therefore been appreciably 10

11 extended in recent years. At a regional level, this causes a problematic restriction on crop rotations, notably in forage-growing and livestock production regions. In some districts, over 50 % of arable land is under maize now. The benefits involved in using land for arable farming compared with grassland use have increased due inter alia to the EEG, and grassland has been increasingly ploughed up. A ploughing up of grassland should be considered negative, from the point of view of water, climate and nature protection. In the areas where poultry and pig farming are concentrated, the further increase in regional nutrient surpluses caused by biogas plants gives cause for concern. In 2010, approx. 10 % of the organic nitrogen supply on farmland (federal average) came from fermentation residues of crop production. - Impact on agricultural structures: Most of the new biogas plants or extensions were built in regions with a great stocking density. This was instrumental in the upsurge of regional rental figures. The investment turned out to be profitable for most companies that invested in biogas plants. For the dairy and beef sectors, however, the current biogas policy poses a threat to competitiveness. Biogas plants offer a commercial exploitation of maize that can hardly be achieved by livestock farming on a sustainable basis (equilibrium price of milk ct/kg). Without changes to the EEG it is to be expected that cattle farming will in the years and decades to come be progressively squeezed out by biogas. Some investors have now taken action, especially in eastern Germany. They are building biogas plants on a large scale based on the reliable basis for planning provided by the EEG, renting or buying the land required for this purpose and thus restricting the growth prospects of local agricultural holdings. All in all, the Advisory Board concludes that the promotion of biogas production should not be continued as it stands. While it has, for the most part, increased the investors' income, it has the following disadvantages: (a) On account of the very high CO 2 avoidance costs, it fails to convince in terms of climate policy, especially when the indirect changes in land use (leakage) are taken into account. (b) It holds out only little prospect of drastic technological improvements and a cutting of costs that would result from this. (c) It can only make a relatively small contribution to energy supply. (d) It causes problematic changes in agricultural structures (nutrients, crop rotations). (e) It makes the agricultural sector dependent on policy-makers again. (f) On the whole it will tends to trigger an increase in agricultural prices and thus place a strain on consumers of foodstuffs, notably those with low incomes. 3.3 Options for the further development of biogas promotion It will be difficult to find convincing alternative approaches that would avoid the disadvantages of the current policy and, at the same time, allow a continued boom of the biogas sector. Some of the strategic changes that are fundamentally possible are touched upon 11

12 below. However, it has to be pointed out that fleshing out the EEG accordingly would always only have an impact on new biogas installations and extensions, given the protection afforded to older installations. - Focusing on slurry and waste recycling? This focus would be worth considering in terms of climate policy because the pure slurry plants have substantially lower CO 2 avoidance costs than installations processing renewable resources. It would be necessary to this end to raise the mandatory use of slurry or the use of agricultural waste and residual matter to a minimum of 95 % in terms of mass. Even in such a case, approx. 35 % of the required energy would still come from produced agricultural feedstocks. Two parameters are crucial in order to assess this option in terms of climate policy: small installations (75 kw or less) that are built must be able to use an existing slurry store. In this case, carbon avoidance costs in the order of 60 to 120 /t carbon equivalents are to be expected in the "electricity from coal and gas reference system. It is, alternatively, conceivable, particularly in western Germany, that larger communal installations with 150 kw could be established. In spite of the costs incurred in transporting slurry and in setting up the slurry store, these installations achieve carbon avoidance costs of the same order of magnitude because they benefit from significant economies of scale. - RR biogas only from arable farming regions? In view of the regional conflicts in the livestock production regions, the trade associations ideas are to reform the EEG to make new RR installations essentially only profitable in arable farming regions and not in livestock production and forage-growing regions (maintaining the RR bonus only in arable farming regions). The Advisory Board does not support this way of thinking. While this proposal would prevent a further exacerbation of conflicts in the livestock production and forage-growing regions, this would mean that arable farming regions continued with a climate protection policy that is simply inefficient because the carbon avoidance costs would be over 300 /t carbon dioxide equivalents (bearing the leakage effects in mind). If policy-makers do not wish to act upon this appraisal because they give more credence to information about forthcoming technology breakthroughs from the biogas sector, we would recommend at least lowering the RR bonus and laying down a substantial degression over time for the years to come. - Focusing on gas feed-in? The feeding of biomethane into the natural gas grid is already being promoted by the EEG at present, however only in those cases where the gas fed into the grid is being used for electricity generation. As far as the revenues are concerned, this variant benefits from the fact that (a) the CHP bonus can usually be claimed and (b) a large number of decentralised small installations are being established that are eligible for comparatively higher feed-in tariffs. These income benefits are pitted against cost disadvantages that arise from the purification of biogas and from the cost of supply lines. The Advisory Board considers the proposal of making the feed-in into the gas grid per se (i.e. independent of the use of gas for electricity generation) eligible for support rather unconvincing. The biomethane fed into the grid would then essentially be used for heat generation. On the one hand, this triggers a need for high subsidies (import prices of natural gas of 2 to 2.5 ct/kwh, production costs of biomethane over 7 ct/kwh). On the other hand, only natural gas that is comparatively climate-friendly would thus be substituted. Rising rather than falling carbon avoidance costs can therefore be expected. 12

13 Added to this is the availability of a much cheaper variant within the sector of regenerative energies, i.e. the energy line "heat from wood chips". - Using biogas to offset load fluctuations? The background to these considerations is the fact that wind and solar energy are particularly subject to fluctuations due to their dependence on the weather or time of the day and that these must be offset by energy sources that are adjustable at short notice. Biogas can be stored and used for electricity generation at a later date. However, biogas installations would, to this end, have to be extended to include additional gas storage facilities and capacity for electric power generation. These costs of extending a biogas installation lie in the range of 3 ct/kwh. Depending on whether electricity is being generated within an eight-hour or twelve-hour block, these additional costs would be offset by an additional electricity revenue in the order of 1 2 ct/kwh. The additional expenses are therefore not covered by the added value of electricity under current market conditions. With regard to the carbon avoidance costs, and given that sufficient electric power is to be generated to meet market requirements, the same situation is likely to arise as in the "direct feed-in of biomethane option" outlined above. Even when providing balancing energy from fossil sources, the comparatively climate-friendly natural gas would usually be used so that biogas-based electricity production would come off relatively badly again. - Focusing on technology leadership? Biogas installations have spread widely on account of the aid provided, without, however, coming anywhere near the competitive threshold. It would be consistent in this situation for policy-makers, insofar as they want to continue promoting this bioenergy line at all, to make a major U-turn: providing no more support for the dissemination of expensive standard technology and instead focusing the available funding on projects that are specifically geared to innovations for more efficiency and competitiveness. Funding these projects from the EEG seems questionable. The support strategies of the Federal Ministry of Education and Research (BMBF) and of the Federal Ministry of Food, Agriculture and Consumer Protection (BMELV) are more suitable for this purpose. While this shift towards technology development is likely to adversely affect the short-term expansionism of the bioenergy sector, since the domestic volume of investments would at first shrink significantly, it would, however, have a positive influence on the longer-term export opportunities of German manufacturers. Among the options set out above, the Advisory Board favours the option "focusing on the use of slurry and waste". 4 Recommendations With regard to the basic formulation and application of the EEG, the Advisory Board recommends that: - Policy-makers should spell out in more specific terms the core idea behind the EEG. The core objective of the EEG should be to promote the technological development of various renewable energy sources so as to significantly improve their efficiency and to reach the competitive threshold within a reasonably short period of time. 13

14 - The evaluation enshrined in the EEG should primarily be targeted at assessing the different energy technologies (a) on the basis of their carbon avoidance costs and (b) the way they have changed over time. The indirect land use effects must also be included in this evaluation. Second, supplementary criteria for assessment such as effects on agricultural structures should also be analysed. - Policy-makers should consistently take the outcome of evaluations into account when it comes to revising the EEG in the near future. Bioenergy technologies with carbon avoidance costs of well over 100 per ton and no clearly visible improvement in the course of time should not be supported any more. With regard to the other bioenergy technologies, it should be explicitly stated in each case what specific targets the promotion is expected to reach and by when. All in all, the Advisory Board concludes that the promotion of biogas production should not be continued in its current form. Protection should, however, be afforded to existing installations. With regard to the future arrangements for biogas promotion in the EEG, the Advisory Board recommends that: - The RR bonus should be abolished for new installations. - The basic tariff should be maintained and the slurry bonus significantly increased in order to promote the construction of pure slurry plants. However, the slurry bonus should only be envisaged for plants that use a minimum of 95 % slurry in terms of mass. If this policy measure were to be implemented, the production of renewable energies would then only be a welcome side effect. The main purpose of the measure would be to reduce methane emissions caused by slurry. With regard to the farm size patterns and the problem concerning the transportation of slurry, the Advisory Board thinks it is worth considering staggering the slurry bonus according to the size of the plant. - The remaining bonuses should be abolished. Only some of them have had regulatory effects and these effects sometimes went in a direction that later turned out be problematic. We would like to point out, by way of example, the targeted subsidization of non-slurry plants (technology bonus) or the subsidization of in some cases questionable heating strategies (CHP bonus). While it is meaningful to extend the dissemination of heat and power cogeneration, this is already being promoted through other measures (investment promotion) which could be scaled up, as appropriate. - In view of the fact that many biogas installations built in the past differ widely in terms of their efficiency as regards climate change mitigation, it should be examined whether an intensification of consultancy services in this regard could make a cost-effective contribution towards the mitigation of climate change. We need to assess, moreover, what measures policy-makers should take in order to ensure that operators of installations comply with the highest possible standard in climate change mitigation. - With respect to the protection of water bodies, fermentation residues of plant origin should be treated in the Fertiliser Application Ordinance in a similar manner to livestock manure. As in the case of slurry, for instance, a minimum storage capacity should also be prescribed for fermentation residues. While the spreading of nitrogen from animal excretions may not generally exceed 170 kg/ha, no upper limit has so far been set for 14

15 nitrogen from fermentation residues of plant origin. It is recommended that the current 170 kg limit for the sum of nitrogen from animal excretions and fermentation residues of plant origin should be defined. 15

16 Members of the Scientific Advisory Board on Agricultural Policy at the BMELV Appointment period Prof. Dr. Folkhard Isermeyer, (Chairman) President of the Johann Heinrich von Thünen Institute (vti), Federal Research Institute for Rural Areas, Forestries and Fisheries Prof. Dr. Dr. Annette Otte (Deputy Chairwoman) Professor for Landscape Ecology and Landscape Planning at the University of Gießen Prof. Dr. Jürgen Bauhus Institute for Silviculture at the University of Freiburg Prof. Dr Olaf Christen Institute for Arable and Crop Farming at the Martin Luther University Halle-Wittenberg Prof. Dr. sc. agr. Stephan Dabbert Institute for Farm Management at the University of Hohenheim Prof. Dr. Dr. Matthias Gauly Institute of Animal Breeding and Genetics at the University of Göttingen Prof. Dr. Dr. h.c. Alois Heißenhuber Chair in Agricultural Economics and Farm Management at the University of Technology in Munich Prof. Dr. Jürgen Heß Faculty for Organic Agricultural Sciences at the University of Kassel Prof. Dr. Dr. h.c. Dieter Kirschke Institute for Business and Social Sciences in Agriculture, Agricultural Policy at the Humboldt University in Berlin Prof. Dr. Uwe Latacz-Lohmann Institute of Agricultural Economics at the Christian Albrecht University in Kiel Prof. Dr. Matin Qaim Department of Agricultural Economics and Rural Development at the University of Göttingen Prof. Dr. P. Michael Schmitz Institute for Agricultural Policy and Market Research at the University of Gießen Prof. Dr. Achim Spiller Institute for Agricultural Economics at the University of Göttingen Prof. Dr. Albert Sundrum Faculty for Animal Nutrition/Animal Health at the University of Kassel Prof. Dr. Peter Weingarten Institute for Rural Areas of the Johann Heinrich von Thünen-Institute (vti), Federal Research Institute for Rural Areas, Forestries and Fisheries 16

17 Office of the Advisory Board Federal Ministry of Food, Agriculture and Consumer Protection (BMELV), Division 531 Tel: (0)

18 Publications by the Advisory Board on Agricultural Policy (since 2003) Risk and crisis management in the agricultural sector On the role that the state is playing in dealing with yield and price risks (March 2011) Statement on the introduction of an animal welfare label in Germany (March 2011) Statement on the Commission Communication on the Common Agricultural Policy towards 2020, January 2011 of 20 January 2011 Coexistence between genetic engineering in the agricultural and food sectors Statement by the Advisory Board on Agricultural Policy, June 2010 Preparing for the "CAP Health Check" Statement, March 2008 Using Biomass for Energy Generation - Recommendations to policy-makers Expert Stament, November 2007 Further development of the policy for rural areas Statement, October 2006 Statement on current issues related to EU finances and the EU agricultural budget November Statement on the future of livestock husbandry January Statement on the proposal for the Regulation on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) COM(2004)490 January Statement on the decisions of the Council of the European Union on the reform of the Common Agricultural Policy (CAP) June