David Glenister Sustainability Expert, Systems and Services Certification, SGS

UNDERSTANDING SUSTAINABLE BIOFUEL PRODUCTION, THE EU RENEWABLE ENERGY DIRECTIVE AND INTERNATIONAL INITIATIVES TO VERIFY SUSTAINABILITY A discussion about the global importance of ensuring biofuels are produced sustainably and the international initiatives to drive the market in a socially acceptable and environmentally friendly well-managed direction FEBRUARY 2012 AUTHORS David Glenister Sustainability Expert, Systems and Services Certification, SGS Vanda Nunes Market & Product Development Manager, Systems & Services Certification, SGS

ABSTRACT This document aims to provide an insight into the issues associated with the sustainable production of biofuels. It discusses the contents of the 2009 European Renewable Energy Directive (2009/28/EC) along with the subsequent European Commission Communications (June 2010), which relate to the implementation of sustainability schemes. Following this it details the first seven sustainability schemes to gain European Commission approval, as of July 2011, as covering all the criteria specified in the 2009 European Renewable Energy Directive. Organisations wishing to produce and sell biofuels that can count towards an EU member s renewables targets need to be assessed against the sustainability criteria outlined in the Directive. This paper explains how the sustainability criteria can be broken down and details what they refer to. It also discusses the initiatives and methodology for auditing, verifying and certifying compliance with these criteria and with the EU Directive, along with other legislation around the world. Ultimately, it guides any organisation operating in the biofuels industry through the EU requirements for market support and what is considered good practice on an international scale. CONTENTS I. EXECUTIVE SUMMARY 2 II. SUSTAINABLE BIOFUELS 3 III. THE EUROPEAN UNION RENEWABLE ENERGY DIRECTIVE 5 IV. EU COMMISSION APPROVED VOLUNTARY STANDARDS 6 V. GLOBAL SUSTAINABILITY INITIATIVES 7 VI. THE KEY PRINCIPLES AND CRITERIA FOR SUSTAINABLE BIOFUELS 13 VII. VERIFICATION AND CERTIFICATION OF SUSTAINABILITY 16 VIII. CUSTOMISED AUDITS AGAINST SUSTAINABILITY PERFORMANCE CRITERIA AND ISSUE OF A RENEWABLE ENERGY DIRECTIVE LIMITED ASSURANCE STATEMENT 18 IX. CONCLUSIOn 20 1

I. EXECUTIVE SUMMARY Biofuels use is widely recognised as a potential solution to the problem of greenhouse gas emissions. They are increasingly providing an alternative to traditionally used and highly polluting fossil fuels for powering vehicles and heating buildings. The increasing use of biofuels also means that the world can become less dependent on oil and gas as these natural resources deplete further. As a result of the increased focus on these issues over recent years the biofuels industry has grown exponentially. However, much of this speed has been because of the identified profit potential of the market and not because of these environment and resource driven factors. Those with a true concern for the world have now realised that there are many issues that need to be considered as part of biofuels market development and that only if the market is properly controlled can these aspirations be met. As Achim Steiner, Under-Secretary General of the United Nations and UNEP Executive Director said: There is no doubt that we need to decrease our reliance on fossil fuels and move to cleaner, more environmentally friendly options, but we need to make sure we are not creating more problems than we solve. The main concern associated with bioenergy is that its increased production could have severe negative impacts on biodiversity. These could be aspects such as landuse change, the introduction of potentially invasive species, the overuse of water and even by indirectly causing other agriculture production to move into conservation areas. However, at the same time the production of biofuels has positive impacts too. As the plants grow they put oxygen into the atmosphere, jobs are created throughout the whole value chain and the increased use of biofuels over fossil fuels should reduce pollution. Essentially, it is recognised that with a proper framework in place which balances greenhouse gas emissions savings against the impact on biodiversity, water and food security, it should be possible to develop a truly beneficial industry. In-depth planning, monitoring and management is required globally, regionally, nationally and on a project-by-project basis. It is in response to this need that the European Union (EU) established the EU Renewable Energy Directive legislation that forces any Economic Operator in the EU to verify the whole value chain of their products against a clearly defined set of criteria that, when met, guarantee that the biofuel has been produced in a sustainable manner. In addition to the EU Renewable Energy Directive there are also a number of global sustainability initiatives that are helping to drive the industry in a sustainable direction. The purpose of these initiatives is to support the industry in meeting the regulations targets and requirements as well as to approach the subject with even greater depth and vision. 2

II. SUSTAINABLE BIOFUELS WHAT IS SUSTAINABILITY? The term sustainability in the context of resources refers to the ability of the human race to sustain its existence on planet earth. This involves taking care of the needs and demands of the current society while continually ensuring that no damage is done to ecosystems or the environment. In the 1980s when the importance of sustainable development was first realised the Bruntland Commission described it as: Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. There are many definitions of sustainability, but this is the most relevant and useful when considering renewable energies such as biofuels that are now seen as critical energy sources in the battle to decrease our dependency on non-renewable fuels such as oil and gas at the same time as protecting the environment. BIOFUELS FROM SUSTAINABLE SOURCES Biofuels, which can be solid, liquid or gas fuels derived from biomass, are internationally recognised as having a clear role to play in the quest to reduce greenhouse gas (GHG) emissions and to develop energy security. However, as the popularity of biofuels has grown, so too has the realisation that not all biofuels result in the same net benefit for the environment. Biofuels that have an undue impact or compete with food crops are losing their political and market support, as they have been revealed as unsustainable. Ultimately, only those that are sustainably produced can be considered truly renewable energy sources. For it to be said that a biofuel is from a sustainable source, the whole value chain needs its sustainability guaranteed. This means that no part of the production, handling or transport of the biofuel can be seen to be ecologically destructive in any way. Essentially, the biofuel cannot be manufactured from raw materials associated with tropical forests or recently deforested areas, drained peatland or wetland or other areas high in biodiversity or carbon stock. This includes any biomass plantations on land that was previously covered in forest. In addition, the biofuel cannot originate from areas designated for the protection of nature or from land where rare, threatened or endangered ecosystems or species exist. What this means in practice is that every entity in the production chain needs to be able to provide evidence supporting their sustainable land use and processes. Starting from the farmer and the mill, moving on to the trading companies that transport or adapt the product, to the fuel supplier who delivers it to a filling station and finally to the filling station every supplier from the field to the end user must offer full traceability of sustainability. This chain of custody approach to ensuring sustainability means that for any given consignment of biofuels every detail of its production meets the required parameters set that prove its beneficial worth. EXAMPLE BIOFUEL VALUE CHAIN FOR SUGAR CANE DERIVED BIO ETHANOL Sugarcane field Harvesting Transport to factory Ethanol and energy production Transport to harbour depot Harbour depot Transport to depot Reloading in destination depot Transport to destination Destination depot Transport to customer 3

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III. THE EUROPEAN UNION RENEWABLE ENERGY DIRECTIVE In June 2009, the European Union launched the Renewable Energy Directive with ambitious targets for all member states. The Directive details how each country must assist in the overall goal: 20% of all energy used within the EU must come from renewable sources by 2020 with 10% of this being in the transport sector. Within the detail of the Directive, development plans for the introduction and development of renewable energy sources can be found. In the case of biofuels, this clearly outlines sustainability criteria that must be adhered to if the use of a biofuel from a particular source is to count towards a member state s renewable energy target. Should these criteria not be met, the biofuel is not considered to be a sustainable renewable energy source. By ensuring countries within the EU adhere to the sustainability criteria the EU aims to limit the expansion of biofuels, preventing those that do not generate net greenhouse gas (GHG) savings and have negative impacts on biodiversity or land use from achieving market support. The sustainability criteria can be broken down into twelve different factors: Legality; Human and Labour Rights; Local Food Security; Greenhouse Gas Emissions; Land Rights; Rural and Social Development; Planning, Monitoring and Continuous Improvement; Conservation; Use of Technology, Inputs and Waste Management; Water; Soil; and Air. Shortly after the Renewable Energy Directive was published, the European Commission issued communications explaining how member states and organisations within the biofuels industry can implement and assess biofuels against the sustainability criteria and counting rules. As part of this, the EU gave organisations the option to show compliance using a voluntary certification scheme. The communications go on to explain what is required of voluntary certification schemes for sustainable biofuels. While there are other options discussed such as national agreements and bilateral or multilateral agreements, voluntary certification schemes are discussed in the most depth. Within the Renewable Energy Directive and throughout these subsequent communications the European Commission is encouraging industry, governments and NGOs to use recognised voluntary schemes as a means of proving the origins of biofuels as well as their greenhouse gas reductions. 5

IV. EU COMMISSION APPROVED VOLUNTARY STANDARDS Using an approved voluntary or national scheme demonstrates an organisation s biofuels are certified as meeting the sustainability criteria, and if the necessary modules are used, the EU RED (Renewable Energy Directive). On July 19, 2011, the European Commission announced the first batch of seven schemes to gain its approval. Each has been rigorously checked to ensure all the sustainability criteria are covered effectively. The approval is valid for five years and confirms that the scheme can issue a certificate for a product that is fully assessed and meets all its criteria. Here are the seven that are confirmed to hold EC approval: International Sustainability Carbon Certification (ISCC) Bonsucro (previously the Better Sugar Cane Initiative) Roundtable on Responsible Soy (RTRS) Roundtable on Sustainable Biofuels (RSB) 2BSvs Biomass Biofuels Sustainability RED Bioenergy Sustainability Assurance Standard (RBSA) Greenergy (Brazilian Bioethanol verification programme) A number of countries (i.e. Sweden, Germany, Hungary, Austria, Denmark, UK, Spain and Italy) already have legislation in place that requires organisations and products to be verified against a recognised scheme before they can be sold in that country. Other countries are preparing to introduce similar legislation and it is anticipated that the next batch of approved voluntary schemes to be announced by the EU Commission is planned for 2012. COMMON FEATURES OF THE EC APPROVED SCHEMES The seven currently approved schemes share these common features: 1. Production Standard each assesses for sustainable production and processing 2. Chain of Custody Standard each scheme provides buyers with full supply chain insight, so that they can make credible claims based on tracing the product back to source 3. EU RED each scheme includes all elements required within the EU RED APPROVED VOLUNTARY CERTIFICATION SCHEME METHODS Segregation Physical compliant product is separated from physical non-compliant product in accordance with the relevant voluntary scheme/standard. Physical product may be mixed only with other lots, batches, quantities or consignments only from compliant physical product. Documentation clearly separates between compliant product and non-compliant product. The resulting batch(es) of compliant product may be tracked onward in the associated documentation through the chain of custody. This system allows those taking ownership of material to be certain that the material is (or is made from) product that originates from the certified farms. This is not only applicable to biofuel but also for product destined for food usage etc. Continuous accounting system or a fixed inventory period. Mass Balance Book & Claim The certified product is completely decoupled from sustainability certificates, and both certified and non-certified products flow freely through the supply chain. Sustainability certificates would be issued by an independent body. 6

V. GLOBAL SUSTAINABILITY INITIATIVES The EU RED links to a wide and varied range of sustainability initiatives that are being put in place around the world. The EU Directive is a regional initiative which covers all biofuels sold in the EU region. This is supported by the European Committee for Standardisation s (CEN) initiatives. In various countries across the globe national initiatives are in place, or are being introduced. For example, the USA has a Renewable Fuels Standard (RFS2) along with initiatives developed by the California Air Resources Board (CARB) and the Council on Sustainable Biofuel Production (CSBP). Internationally there are a wide range of institutions looking at sustainability projects and initiatives, including the United Nations Environment Programme (UNEP) and the International Organisation for Standardisation (ISO). A further group of initiatives bring together stakeholders from a wide-ranging array of interested and associated parties. In some instances, these are related through an area of the biofuels industry, for example the Roundtable for Responsible Palm Oil (RSPO) or through organisations like Bonsucro and the Roundtable on Sustainable Biofuels (RSB), which unite organisations across the biofuels industry. Here we look at an overview of some of the key sustainability initiatives that are currently available in the marketplace. BIOFUELS SUSTAINABILITY INITIATIVES REGIONAL NATIONAL EU DIRECTIVE EUROPEAN COMMITTEE FOR STANDARDIZATION RFS2 CARB CSBP RTFO LOW CVP FUELS CRAMER SUSTAINABLE BIOMASS ISCC INTERNATIONAL INSTITUTIONS For Black and White document MULTISTAKEHOLDER United Nations Environment Programme For Color document UNEP PC 248 RSB Services FSC RTRS RSPO BS 7

REGIONAL SUSTAINABILITY INITIATIVES EU Renewable Energy Directive (EU RED) The EU RED, as we have already covered in this paper, is the core document and enabling legislation for ensuring that only sustainably produced biofuels are successfully brought to market within the EU region. With the legislation becoming mandatory from December 2010, EU countries are now in the process of aligning their own legislation, standards and guidelines so that key dates set out in the legislation are met. The European Committee for Standardization (CEN) CEN develops European Standards that are channelled down for implementation by all CEN National Standardisation bodies, who have the obligation to withdraw any conflicting national standards when the CEN Standard is introduced. The 27 countries of the EU, along with Croatia and three of the countries in the European Free Trade Association (EFTA) are members of CEN. Organisations and companies wishing to purchase European Standards are directed to their national standards body for further information. Following the launch of the EU RED, CEN has a technical committee (CEN/ TC383) working on standards for sustainably produced biomass for energy applications. These cover: Economic and Social Impacts; Verification and Auditing; Indirect Effects; Terminology, Consistency of Evaluation Methods and other crosscutting issues; GHG Emission Balance, Fossil Fuel Balance and respective calculations using a life-cycle approach; and Biodiversity and Environmental Aspects. As a result there is a standard in three parts in the drafting phase, each with a 2013 deadline. This ties in with the need to comply with the 35% greenhouse gas saving over comparable fossil fuels by 1 st April 2013, for biofuels from production process in place prior to 23 rd January 2008. This is one of the greenhouse gas saving targets detailed within the EU RED. NATIONAL SUSTAINABILITY INITIATIVES United States of America Renewable Fuel Standard (RFS2) The RFS2 has been developed by the United States Environmental Protection Agency which implements regulations to ensure transportation fuel sold in the US contains a minimum volume of renewable fuel. The standard was created as a result of the Energy Policy Act (EPAct) of 2005, and as stated in the Act, the original RFS program (RFS1) required 7.5 billion gallons of renewable fuel to be blended into gasoline by 2012. The RFS2 version launched as a result of the Energy Independence and Security Act (EISA) of 2007. This expanded the standard in several key ways: To include diesel, in addition to petrol Increased volume targets for renewable fuel blended into transportation fuel, from 9 billion gallons in 2008 to 36 billion gallons by 2022 To include new categories of renewable fuel with separate volume requirements for each To apply lifecycle greenhouse gas performance threshold standards to ensure that each category of renewable fuel emits fewer greenhouse gases than the petroleum fuel it replaces California Air Resources Board (CARB) launched a standard in response to the Low Carbon Fuel Standard (LCFS) Program for California which called for, in 2007, a reduction of at least 10% in the carbon intensity of transport fuels by 2020. CARB then began coordinating activities between the University of California, the California Energy Commission and other state agencies to develop and propose a draft compliance schedule to meet the 2020 target. CARB also initiated regulatory proceedings to establish and implement the LCFS. This regulation came into effect on 15 th April 2010. 8

Council on Sustainable Biofuel Production (CSBP) The CSBP is a multi-stakeholder organisation supported in part by the Natural Resource Conservation Service, U.S. Department of Agriculture. It includes growers, environmental and social interest groups and all sectors of the industry. It was established in 2007 to develop comprehensive voluntary sustainability standards for the production of biomass and its conversion to bioenergy. Its standard is designed to serve as the foundation for an independent third-party certification program. The CSBP Provisional Standard for Sustainable Production of Agricultural Biomass applies to biomass produced from non-food sources such as dedicated fuel crops, crop residues and native vegetation. It addresses the full complement of sustainability issues through principles, criteria, and indicators applicable to both agriculture and silviculture. United Kingdom Renewable Transport Fuel Obligation (RTFO) The RTFO requires suppliers of fossil fuels to ensure that a specified percentage of the road fuels they supply in the UK are from renewable fuel sources. Under the RTFO the sustainability targets increase year on year and require companies to submit reports on the carbon and sustainability of their biofuels. Any company that supplies over 450,000 litres of fossil fuel per annum for road transport is obligated under the RTFO and these companies must register with the Department for Transport (DfT). As most fossil fuel used for road transport in the UK is refined or imported by one of about 14 suppliers these are the RTFO s obligated suppliers. An obligated supplier must prove to the Renewable Fuels Agency (RFA) that it has met its obligation by producing Renewable Transport Fuel Certificates (RTFCs) at the end of the year. Any company that owns biofuel for use in road transport as it crosses the UK duty point, regardless of its size, is eligible to claim RTFCs which may be traded and even the smallest biofuel producers may claim certificates. Certificates can potentially be sold to obligated companies and then may be used by them to meet their obligation. There is no guaranteed value for RTFCs, instead the value is set entirely by the market. The potential income stream represented by the awarding of RTFCs is to become the main government support mechanism for biofuels in the UK (NB: on the cessation of all duty incentives expected in April 2012 when the duty incentive for biodiesel from used cooking oil is to end). The Netherlands The Cramer Commission In 2007 the Cramer Commission provided a detailed biofuels report to the Dutch government. Using a variety of criteria it proposed a biofuels certification scheme. It has since been translated into policy for reporting requirements only rather than into any mandatory standards. The Cramer Commission s assessment framework provides criteria and indicators but does not detail how to ensure the criteria are met. It acknowledges the difficulties in assessing biofuel production at the individual organisation level and how often the criteria only become apparent on the regional, national and sometimes international level. Sustainable Biomass The Netherlands introduced the first system for the certification of all types of sustainable biomass in January 2011 (based on NTA 8080). The system was launched by standardisation institute NEN and the Rotterdam Climate Initiative (RCI). It is based on the Dutch technical agreement (NTA 8080), which describes requirements for assessing the sustainability of solid, liquid and gaseous biomass for energy applications and transport fuels. Germany International Sustainability Carbon Certification (ISCC) The ISCC, offers an international certification system for biomass and biofuels (fuels and electricity) that describes the rules and procedures for certification. The scheme is both EU RED approved and recognised by the German government. The German Federal Agency of Agriculture and Food (BLE) approves certification systems and certification bodies according to Bio-Nachhaltigkeitsverordnung (Bio-Sustainability). The ISCC has established an internationally oriented, practical and transparent system for the certification of biomass and bioenergy. It covers a reduction of greenhouse gas emissions, the sustainable use of land, protection of natural biospheres and social sustainability. France 2BSvs: biomass biofuel, sustainability voluntary scheme Developed by French biofuels producers as a scheme for all biomass and biofuel producers throughout the world. It 9

was devised to give biofuels producers throughout the supply chain a means through which they can demonstrate the sustainability of their products, in line with the requirements of the EU RED. The 2BSvs scheme was included in the first seven schemes to be granted EC approval. It covers the verification of biomass production and collection by biomass producers and first gathering entities as well as the requirements for mass balance systems for production plants and other economic operators. INTERNATIONAL INSTITUTIONS SUSTAINABILITY INITIATIVES United Nations Environment Programme (UNEP) UNEP is the arm of the United Nations (UN) focused on the environment. It aims to lead the world in caring for the environment by inspiring, informing, and enabling people to improve their quality of life without compromising that of future generations. UNEP works in many areas within this scope. A key focus when it comes to biofuels is environmental assessment, monitoring and reporting. UNEP assists the international community by providing access to environmental data and it helps governments to use this information for the benefit of their societies in terms of planning and sustainable development. UNEP has established an International Panel for Sustainable Resource Management, which, after in-depth research, produced in 2009 a report titled: Towards Sustainable Production and Use of Resources: Assessing Biofuels. The report examines options for more efficient and sustainable production of biomass, covering first generation biofuels and the global and regional situation. It covers lifecycle analysis, water as a limiting factor, land use change issues and impacts, plus ways that relevant factors can be approached sustainably. Finally it calls for mandates, targets and standards to be science based and to cover all of the effects, direct and indirect, that increased biofuels production could cause if it is not precisely managed. International Organisation for Standardisation (ISO) The ISO develops and publishes International Standards. It is a network of the national standards institutes of 163 countries, one member per country, with a Central Secretariat in Geneva, Switzerland. ISO is a non-governmental organisation that brings together the public and private sectors to enable consensus solutions that meet the requirements of both business and society. The ISO is in the process of developing an International Standard (ISO 13065) to address sustainability issues linked to bioenergy. The standard is being produced by the ISO project committee ISO/PC 248 which held its first meeting in April 2010. This committee includes participating delegations of ISO national members from 20 different countries, with a further 13 countries holding observer status. It aims to achieve standardisation in the field of sustainability criteria for production, supply chain and the application of bioenergy. ISO/PC 248 brings together international expertise and best practice to discuss the social, economic and environmental aspects of bioenergy, and identify criteria that could prevent it from being environmentally destructive or socially aggressive. MULTISTAKEHOLDER SUSTAINABILITY INITIATIVES Roundtable on Sustainable Biofuels (RSB) The RSB is an international initiative initially set up and coordinated by the Energy Center at EPFL in Lausanne, Switzerland. It was created in 2007 to coordinate international efforts to ensure biofuels are produced sustainably. It brings together farmers, companies, non-governmental organisations, experts, governments, and intergovernmental agencies. In 2008 the RSB launched a versionzero third-party certification system for biofuels. The standard is a set of principles and criteria developed through a multi-stakeholder process. It covers all aspects of environmental, social and economic issues relating to biofuels. A second version of this voluntary standard was then issued on 12th November 2010. This latest version describes the social and environmental requirements operators must meet in order to be certified currently. As of March 2011 the RSB certification scheme became fully operational, with organisations throughout the biofuels supply chain expected to receive certification in 2011. The RSB scheme is recognised by the German Federal Agency of Agriculture and Food (BLE) for meeting the German Bio- Sustainability requirements and approved by the EU Commission for meeting the requirements of the EU RED. 10

In 2012, the RSB completed a transition process to create a new legal entity, RSB Services. This represents an independent entity from the EPFL and is incorporated in the State of Virginia, USA. The new RSB Services takes over the management and development of the RSB Standard. FSC Forest Management and Forest Product Chain-of-Custody FSC is an independent, nongovernmental, not-for-profit organisation established to promote the responsible management of the world s forests. Established in 1993 as a response to concerns over global deforestation, FSC is widely regarded as one of the most important initiatives of the last decade to promote responsible forest management worldwide. Forest management certification is an independent assessment of the forest management unit to check that a forest complies with the internationally recognised standards of the Forest Stewardship Council (FSC ). In 1993, the FSC also published a standard which outlined 10 principles and criteria for forest stewardship and the requirements for Chain-of-Custody (CoC). Forest Product CoC certification involves tracking the origins of wood to guarantee its authenticity through the entire supply chain. It also provides an assurance to customers, stakeholders and investors of the quality of forest management at the original source of the timber. FSC is a certification system that provides internationally recognised standard-setting, trademark assurance and accreditation services to companies, organisations, and communities interested in responsible forestry. The FSC label provides a credible link between responsible production and consumption of forest products, enabling consumers and businesses to make purchasing decisions that benefit people and the environment as well as providing ongoing business value. Roundtable on Responsible Soy (RTRS) The RTRS is an international multistakeholder initiative founded in 2006 that promotes the use and growth of responsible production of soy through a global standard for responsible production. As of 2011, the global market will be able to buy RTRS certified soy. The RTRS Standard s certification system for CoC was created in the second half of 2010 to allow for this certified soy to go to the market. Before its launch the RTRS carried out extensive field-testing as well as producing national interpretations of the documents for countries such as Argentina, Brazil, Paraguay, India, and recently Bolivia, Uruguay and China. The RTRS program also covers CoC that includes the components of mass balance and non-gm (segregation). In particular, the standard implements the requirements of the EU RED and is EC recognised. Roundtable on Sustainable Palm Oil (RSPO) In response to the global call for sustainably produced palm oil, the RSPO was formed in 2004 to promote the growth and use of sustainable palm oil products through credible global standards and the engagement of stakeholders. This not-for-profit association unites stakeholders from seven sectors of the palm oil industry: oil palm producers; palm oil processors or traders; consumer goods manufacturers; retailers; banks and investors; environmental or nature conservation NGOs; and social or developmental NGOs. The RSPO Principles and Criteria for Sustainable Palm Oil Production were adopted in November 2005, pilot implemented for two years, and released for use from November 2007. They provide generic standards for sustainable palm oil production and have been further adapted for use by each producer country through National Interpretation. Producers are certified through strict verification of the production process to the Principles and Criteria by accredited certifying agencies. All other companies in the global palm oil supply chain that process or use sustainable palm oil products need to be certified to ensure that market claims are valid and can be verified. Through supply chain certification, a company proves that its operations comply with the rules governing the entire supply chain of RSPO-certified palm oil products. Bonsucro (previously named the Better Sugar Cane Initiative) Bonsucro (BS) aims to improve the social, environmental, and economic sustainability of sugar cane by promoting sustainability through a global standard, with the aim of continuously improving sugar cane production and downstream processing. BS is focusing on significant social and environmental issues associated with sugar cane cultivations such as: soil productivity; rational water use; effluent management; biodiversity maintenance; and equitable labour. BS promotes the implementation of sustainable sugar production to reduce these social and environmental impacts while maintaining or enhancing the economic status of farmers. BS launched its sustainability standard in July 2010 as the result of a multistakeholder process. Along with the ten key principles and criteria the BS Standard is designed to comply with the EU RED and is recognised as achieving this by the European Commission. As a result of BS s work sugar cane buyers are able to choose sugar that has been produced according to agreed, transparent and verifiable criteria. 11

STANDARD CLASSIFICATIONS FOR BIOFUEL SUSTAINABILITY INITIATIVES The table below clarifies where each standard originates from and whether it is a certification, verification or guidance standard. Well-known Sustainability Initiatives for Biofuels Initiating Body Certification Standard Verification Standard Guidance Standard Renewable Fuel Standard (RFS2) United States x California Air Resources Board (CARB) United States x x Council on Sustainable Biomass Production (CSBP) United States x Renewable Transport Fuel Obligation (RTFO) United Kingdom x LOW CVP FUELS United Kingdom x CRAMER Netherlands x Sustainable Biomass (based on NTA 8080) Netherlands x Stockholm Environment Institute (SEI) Sweden x International Sustainability and Carbon Certification (ISCC) Bioenergy and Food Security Criteria and Indicators (BEFSI) Germany x Germany x Roundtable on Sustainable Biofuels (RSB) Multi-stakeholder x FSC Forest Management FSC Forest Product Chain-of-Custody Multi-stakeholder x Roundtable on Responsible Soy (RTRS) Multi-stakeholder x Roundtable on Sustainable Palm Oil (RSPO) Multi-stakeholder x Bonsucro - Better Sugarcane Initiative (BS) Multi-stakeholder x 2BSvs Biomass Biofuels Sustainability France x RED Bioenergy Sustainability Assurance Standard (RBSA) Greenergy (Brazilian Bioethanol verification programme) Abengoa Brazil x x 12

VI. THE KEY PRINCIPLES AND CRITERIA FOR SUSTAINABLE BIOFUELS The sustainability criteria initially detailed in the EU RED and later discussed further in the June 2010 EC Communications can be broken down into twelve major areas or key principles. By ensuring that organisations operating in the biofuels industry meet these sustainability criteria the use of their products can be counted towards renewable energy targets and obligations as well as receiving financial support and investment. 1) LEGALITY Member states must adhere to the EU legislation, namely the EU RED, introducing or adapting national legislation to support it where appropriate. This may apply to laws on land rights, environmental protection, labour issues, chemical use and waste disposal. All organisations operating within the biofuels industry are then obliged to work within the national legislation rules for the countries in which they are doing business and with this they meet the requirements of the EU legislation. On a wider scale organisations also need to comply with any relevant international treaties or conventions. As discussed below, these could be relevant to human and labour rights, but equally they could be about biological diversity issues, wetlands or climate change. 2) HUMAN AND LABOUR RIGHTS EU member or third party countries must understand and implement the Conventions of the International Labour Organisation (ILO). These are Conventions concerning: Forced or Compulsory Labour Freedom of Association and Protection of the Right to Organise Application of the Principles of the Right to Organise and to Bargain Collectively Equal Remuneration of Men and Women Workers for Work of Equal Value The Abolition of Forced Labour Discrimination in Respect of Employment and Occupation Minimum Age for Admission to Employment Prohibition and Immediate Action for the Elimination of the Worst Forms of Child Labour 3) LOCAL FOOD SECURITY The impact from biomass cultivation needs to be closely monitored. One area of concern is that of its effects on food production and local prosperity as a result of land-use changes such as displacement. This needs to be considered very carefully for any biofuel seeking to be qualified as sustainable. The Directive requires that all relevant sources of information on this subject is investigated, including the UN Food and Agriculture Organisation (FAO) world hunger map. The biofuels that are promoted to gain market support are intended to be those that use degraded land, which is not suitable for food crops and is therefore a development of agricultural productivity. It is also critical that the biofuel production does not have a significant impact on food prices. For any groups or communities that are susceptible to food insecurity this is a crucial factor. It could be that they struggle with food supplies as the result of farming practices, the change in the way their community manages food availability or because of the ways in which food or other resources are traded as a result of biofuel production. All the related food security issues need very careful evaluation and some schemes (i.e. RSB) already contain specific food principles. 4) GREENHOUSE GAS EMISSIONS EU member states are required to prove that any organisation operating in their country is working in accordance with the GHG saving requirements outlined in the EU RED. The sustainability criteria include an increasing target for GHG emissions saving from the use of biofuels compared with their fossil fuel equivalents. Currently the required GHG saving is 35% for any biofuels produced from plants that have come into operation after 23 rd January 2008. Any in operation before this date needs to comply with the 35% savings by 1 st April 2013. The saving required is set to increase to 50% or more with effect from 1 st January 2017, with a requirement that by 1 st January 2018 this rises again to at least 60% for biofuels that have come into production on or after 1 st January 2017. In other parts of the world, such as the U.S. there is separate legislation that covers the biofuels that are being sold. Any suppliers into these regions need to ensure that the appropriate GHG saving targets are being met in line with the regulations in place. 5) LAND RIGHTS Often it is unclear as to the ownership of the land that producers are looking to turn into areas for growing biofuels raw products. This change in land-use may mean that local people are displaced and with that lose their ability to feed themselves and their families and to maintain a reasonable quality of life. It may also mean that legal battles are entered to determine who holds land rights and can therefore decide on the land usage. Minority groups are likely to be the worst effected by this with women and vulnerable indigenous people of the most concern. 6) RURAL AND SOCIAL DEVELOPMENT The European Commission is, as outlined in the Directive, tasked with monitoring the impact of biofuels on social sustainability. Part of this is ensuring that community environmental requirements for agriculture are not compromised for any communities producing the raw materials. This means environmental and social minimum requirements must be respected, something that is not always the case in countries outside the EU. Organisations need to ensure that their products present no risk to the livelihood of local people and the opportunities for rural and social development are all examined, targeted and documented. This applies whatever the size of the 13

organisation and wherever they sit within the supply chain. It is then up to the organisations to ensure they work with the local authorities to help communities grow and develop with the opportunities that the biofuels production brings. 7) PLANNING, MONITORING AND CONTINUOUS IMPROVEMENT By incorporating this rising scale of required GHG saving the Directive demands the continual improvement and monitoring of biofuel sources and with it organisations will need to implement planning to increase the GHG saving to the levels required. However, consideration for planning, monitoring and continuous improvement goes further than this and stretches into every other key principle. Best practice, screening processes and quality assessments need to be put in place across the board and improvement targets should be set in all areas. As a stakeholder in a local area any organisation in a biofuels value chain should be looking at ways to improve the region, in terms of reductions in poverty and improved resources. As such, plans to implement these goals in practice should be drawn up, along with long-term objectives. 8) CONSERVATION Any land used or planned-to-be used for biofuels production is required to be cross-checked against the Millennium Ecosystem Assessment. This assessment is compiled from data detailing those areas that need conservation because they provide basic ecosystem necessities in times of crisis. These could be such things as watershed protection or erosion control. It is important that these areas are left unaffected by biofuel crop growth. Biodiverse land is very important to the future wellbeing of the planet. Land with a high biodiversity value is detailed within the Directive as not being suitable for sustainable biofuels and must be conserved. The following land should not be used for the cultivation of the raw materials for biofuels: Primary forest or undisturbed wooded land Nature protection areas Land that is internationally recognised as important for the protection of rare, threatened or endangered ecological systems or species (e.g. on a international conservation of nature list) Natural grassland with natural species and ecological characteristics Non-natural grassland which is species rich and not degraded Information on the measures taken for restoration of degraded land is also required. It is this degraded, marginal or abandoned land that is considered ideal and the most suitable for biofuel crop growth. 9) USE OF TECHNOLOGY, INPUTS AND WASTE MANAGEMENT The EU RED sets out rules to support farmers, which fall under common agricultural policy. These are supported by farmers schemes, which are designed to structure the minimum requirements for agricultural good practice. To be able to prove agricultural good practice, members of a biofuels value chain need to monitor the use of chemicals and potentially hazardous technologies. They need to ensure that throughout all production processes any technologies or chemicals used are improving efficiencies and do not damage the environment or cause harm to the local community in any way. 10) WATER The sustainability criteria require that where biofuels raw materials are being produced, the groundwater and surface water quality is protected. Also, if land has been wetland, e.g. covered or saturated with water for all or most of the year, it cannot be used for biofuel production. This is because the land has a high carbon stock. Information on the measures taken for water protection is required. Another key issue with regard to water is the prevention of excessive water consumption, especially in areas where water is scarce. According to the United Nations Environment Programme (UNEP), the water needed for biofuels production can be up to 400 times greater than that needed for the production of the equivalent traditional fossil fuels. This means that ensuring biofuels can be produced without over exploiting or damaging water resources is a major challenge for the industry. Supply chains need to be better managed so that water use as well as water quality impacts are minimised. 11) SOIL For biofuels to be classed as sustainable they cannot originate from land that was peatland on or after January 2008. Undrained soil must not be drained in order to cultivate and harvest the raw materials for biofuels. Information on the measures taken for soil protection is required and soil impact must be monitored. Practices should be put in place that prevent or reverse soil degradation. A continuing plan for assessing the ongoing capabilities of producers to maintain soil quality is also necessary. Both soil where the crops are produced and soil around any area that is affected by any part of the production process must be assessed for impact. 12) AIR Information on the measures taken for air protection is required so that pollution can be monitored and minimised throughout the supply chain. It is important that technologies used are evaluated, along with each supplier s knowledge and capabilities to operate them in a beneficial manner. Pollutants released could impact the GHG emissions saving calculation and as such need reviewing both from an air-polluting standpoint and for GHG emissions. 14

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VII. VERIFICATION AND CERTIFICATION OF SUSTAINABILITY The sustainability of biofuels is measured across the whole chain of custody with sustainability claims required for raw products, intermediate products and final products, ensuring that every link in the chain from field to distribution is covered. According to Article 18.1 of the EU RED, economic operators should assess the sustainability of biofuels using a mass balance system which: Allows consignments of raw material or biofuels with differing sustainability characteristics to be mixed Requires information about the sustainability characteristics and sizes of the consignments assigned to the mixture Provides for the sum of all consignments withdrawn from the mixture to be described as having the same sustainability characteristics, in the same quantities, as the sum of all consignments added to the mixture Both the Mass Balance System and the Sustainability Criteria that inform it for a given biofuel need to be verified, ideally through a voluntary scheme that is recognised by the European Commission (and potentially other legislation bodies) for this purpose. VERIFICATION REQUIREMENTS Any voluntary scheme verifying the sustainability of the criteria needs to evaluate claims using the methodology outlined in the EU Communication documents. This essentially means an assessment of the management of documents within an organisation needs to be made along with an external, independent audit of the sustainability criteria: Document Management: organisations are required to have an auditable system related to sustainability claims they make, showing evidence from the previous five years as a minimum. It is their responsibility to ensure that all related documentation is prepared and ready for auditing An Auditable System: this should normally be a Quality System that covers quality assurance, supplier approval, full record documentation and traceability Auditing Skills: any auditing and verification body used must have the appropriate specific skills to audit each sustainability criteria as well as the necessary generic auditing skills to assess and verify organisations and biofuels Any auditing and verification body making a sustainability assessment of an organisation does so using the following process: Identify the organisation s activities relevant to the sustainability criteria Identify the organisation s systems and general organisation in relation to the sustainability criteria Check the effective implementation of control systems related to the above Assesses the organisation to an established limited assurance level and make a risk based statement on the organisations sustainability performance Perform a risk analysis of material misstatement from the organisation s information provided Verify related to the risk analysis Verify and sample the organisation s activities, covering its full scope and complexity Gather evidence in line with the sampling methods and the information needed for full verification of greenhouse gas, mass balance chain of custody, land use change, environmental and social principles Request that the organisation provides further or missing information for the audits Ask that variations are explained Ensure claims and calculations are revised and corrected as necessary Provide a final verification conclusion Once this assessment process has been completed and the final verification conclusion has been made, some voluntary schemes are then able to provide the organisation being assessed with a sustainability certification to support their claim. 16

THE CORE ELEMENTS OF A SUCCESSFUL BIOFUEL SUSTAINABILITY CERTIFICATION PROGRAMME Auditor Training Accreditation & Certification Protocol Governance Complaints & Grievance Standard Audit Secretariat Producer Support Sustainable Production Transport Consumer Traceability & Chain of Custody Claims 17

VIII. CUSTOMISED AUDITS AGAINST SUSTAINABILITY PERFORMANCE CRITERIA AND ISSUE OF A RENEWABLE ENERGY DIRECTIVE LIMITED ASSURANCE STATEMENT Organisations that cannot easily be assessed against the structured sustainability criteria outlined in the EU RED and the supporting voluntary certification schemes can be evaluated by a Customised Audit Solution. Essentially, the same requirements still stand for a biofuel to be classed as sustainable, however the way they are analysed can be different in terms of the information used, the calculations performed and the analysis of the GHG saving. As with the voluntary schemes, the auditing body needs to have the appropriate skills and expertise to assess organisations against the areas of sustainability that need to be verified. Any auditing body that has this capability is then in a position to work with an organisation that requires a customised audit to develop a process and assessment that meets their needs and those of the EU. This is effectively the development of a comprehensive set of instruments based on the framework of the EU RED. During the development of a Customised Audit Solution checklist, minimum evidence levels, guidance and training for expert auditors are put in place. As a result of a successful Customised Audit an organisation receives a Limited Assurance Report. For Customised Audits that have been developed to prove regulations compliance this report provides the evidence. A CUSTOMISED AUDIT OF BIOFUEL SUSTAINABILITY FOR THE SEKAB GROUP The Swedish SEKAB Group prides itself on taking the lead in environmentally friendly, well-managed ethanol production. It was one of the first companies in the world to supply verified sustainable ethanol. SEKAB s ethanol is from Brazilian sugarcane and is used in fuels for cars, buses and trucks. Through an audit and verification process SEKAB is able to guarantee that its ethanol production meets specific requirements for sustainability. As a result of the verification, SEKAB has seen an increase in consumer trust in the overall sustainable benefits of the biofuels they produce. Swedish consumers buy ethanol-based fuels mainly because they want to decrease their dependency on fossil fuels and move to renewable energy sources. But there has been a lot of debate in Sweden, as in many other countries, about how sustainable ethanol really is. In the Swedish press there were a lot of articles about forced labour in Brazil, and deforestation of the rainforest. But, back in 2007 when the negative press hit its peak, there was no auditing, certification or international standard as to how ethanol should be produced in a sustainable way. SEKAB therefore spent 18 months developing a framework Verified Sustainable Ethanol with criteria that cover the entire lifecycle of ethanol from the sugarcane fields all the way through to its use in cars. Once the criteria had been outlined SEKAB turned to the recognised international auditing body, SGS, to help set up and manage the audit programme, verifying that the production meets the sustainability requirements at every stage. It is with the experience and knowledge of this auditing body that the auditing process was fine-tuned and brought to fruition. As a result, SEKAB can now show its clients, NGOs and other interested parties a totally transparent process. The company has increased assurance that they are supplying sustainable ethanol. With this approach SEKAB also demonstrated its proactive stance in the market while educating all suppliers in its chain about the requirements of sustainability. An added benefit was that the criteria also provided best practice examples to all kinds of agriculture. Overall, this put the SEKAB suppliers at the front of this movement, able to learn with their clients and the auditing body about how to prepare for the future demands of the global biofuels market. 18

A CUSTOMISED AUDIT PROVING LANTMÄNNEN AGROETANOL S EU RED COMPLIANT SUSTAINABLE BIOFUEL PRODUCTION Lantmännen Agroetanol is the energy division of the Swedish Lantmännen Group, which operates across the Nordic region. Owned, by around 36,000 Swedish farmers, Lantmännen is a large-scale farmers co-operative. Over a number of decades, Lantmännen has developed and diversified into what it is today and as such Lantmännen Agroetanol produces and markets bioethanol from the excess grain produced in Sweden. With the growing international demand for biofuel for the transport sector especially, Lantmännen Agroetanol has been well placed to grow with the industry. In Sweden, all regular petrol already includes 5% bioethanol. Following the introduction of the EU RED, Lantmännen Agroetanol, along with many other biofuels producers, began to look for ways to meet the requirements it laid out. Lantmännen Agroetanol recognised that to continue operating successfully in the biofuels industry it needed to have transparent fully sustainable operations and evidence to prove it. Lantmännen Agroetanol takes responsibility for all parts of the production process and with this is able to control the variables that biofuels produced by supply chains with many different parties involved may find difficult to do. For Lantmännen Agroetanol the major aspect of compliance with the EU RED was to take its direction and intention and to use it to put a management and quality system in place. When Lantmännen Agroetanol first needed its capabilities assessed in 2010, there were no approved industrywide schemes available. SGS was therefore asked to develop and conduct a customised audit solution, tailored to the organisation, industry and location. By working with SGS, Lantmännen Agroetanol was able to prove its operations meet the requirements of the EU RED. As a result of gaining the limited assurance statement verifying its EU RED compliance, Lantmännen Agroetanol has experienced a very positive reaction from its customers. Its ability to sell EU RED compliant material from the beginning of 2011 was necessary for the continued sale of bioethanol across Europe, but at the same time customers in Sweden recognised how quickly it had reacted to the regulations and the industry needs. 19

IX. Conclusion The EU Renewable Energy Directive provides a very detailed and beneficial framework for guaranteeing that only sustainably produced biofuels gain market support within the EU region. It is clear from the legislation and from all the global sustainability initiatives that providing guarantees for biofuels is a very complex issue that involves detailed and in-depth assessment of the whole value chain. Looking at the EU Directive requirements in terms of the criteria and calculations it quickly becomes apparent why the EU Commission strongly recommends the use of a voluntary scheme to perform the biofuel value chain analysis. By choosing to work with a recognised body that can verify and certify production processes, organisations can feel confident that they do truly meet all the requirements that are laid out. In addition to this, it allows them to prepare ongoing development plans to meet each legislative target date that is specified and to generally improve in relation to each sustainability criteria. It is clear from the vast number of international initiatives that the sustainable production of biofuels is a growing issue that will increase in visibility over the coming years. However, with the EU and other related legislation in place it should be the case that only truly sustainable biofuels can survive. With only these gaining international support, biofuels should be able to fill the gap for an environmentally sound and sustainable fuel for the future. ABOUT THE AUTHORS David Glenister Sustainability Expert, Systems and Services Certification, SGS David Glenister was appointed International Sales Manager for SGS Systems & Services Certification during January 2007. In this capacity, David Glenister has responsibilities for the development of major international Certification (3 rd Party) and Customised Audit Solutions (2 nd Party) Audit Programmes. David specialises in Chemical, Finance, Mining and Energy Sectors. David Glenister is an expert in Sustainability Audit Programmes and has developed major international contracts in the Chemical, Clean Energy and Mining Sectors working with companies such as BP, Chevron and Exxon Mobil, Procter & Gamble and Newmont Mining Corporation. David Glenister is leading the International Business Development in Sustainability as part of Global Project Finance and is developing projects incorporating the Social and Environmental Risk Management approach of the Equator Principles adopted by major Global Financial Institutions and Industry Sector Sponsors. David Glenister is a Qualified Lead Auditor of ISO 14001 Environmental Management Systems, ISO 9001 Quality Management Systems. In addition David Glenister is a qualified Sustainability Report Assuror to Global Reporting Index (GRI G3), AA 1000 and Renewable Transport Fuel Obligation. David Glenister graduated in 1985 from Kings College, University of London with a BSc (Hons) Degree in Natural Sciences. Vanda Nunes Market & Product Development Manager, Systems & Services Certification, SGS Vanda Nunes has held the position of Market & Product Development Manager for SGS Systems & Services Certification for nine years. She is responsible for the development and sales of major international Certification (3 rd Party) and Customised Audit Solutions (2 nd Party Audit Programmes). Vanda is also Head of the Food sector in Brazil for certification, testing and inspections. She started her career in SGS three years before the Systems & Services Certification role began. During this period she worked in the Consumer Testing, Minerals and Industrial Business Units, always in sales management, marketing and business development. Vanda Nunes is a Social and Environmental Auditor and has participated in many schemes and standards for code of conduct and social audits in Brazil, the Americas and Europe. She is also a tutor for SA 8000 and sustainability issues for agribusiness. Vanda Nunes leads Latin America Business Development in Sustainability for Biofuels, and has contributed towards the main schemes in development such as ISCC, BSI, RSB. RTRS, ISO PC 248, IETHA and ABIOVE. She has also participated in many global conferences on sustainable biofuels. She holds a bachelor in Business Administration, with a specialisation in International Trade and Sustainability Management from the Fundação Dom Cabral. 20

ABOUT SGS SGS is the world s leading inspection, verification, testing and certification company. Recognised as the global benchmark for quality and integrity, we employ over 70 000 people and operate a network of more than 1 350 offices and laboratories around the world. We are constantly looking beyond customers and society s expectations in order to deliver market leading services wherever they are needed. Partnering with SGS opens the door to better performing processes, increasingly skilful talent, consistent and compliant supply chains and more sustainable customer relationships delivering profitable competitive advantage. Work with the global leader and take your commitment to the next level in managing sustainable biofuels. We have a history of undertaking and successfully executing large-scale, complex international projects. With a presence in every single region around the globe, our people speak the language and understand the culture of the local market and operate globally in a consistent, reliable and effective manner. SGS is a leading independent body helping organisations improve their performance related to sustainable development. For more information, visit www.sgs.com or email alternative-energy@sgs.com COPYRIGHT NOTICE The information contained in this document represents the current view of SGS SA on the issues discussed as of the date of publication. Because SGS must respond to changing market conditions, it should not be interpreted to be a commitment on the part of SGS, and SGS cannot guarantee the accuracy of any information presented after the date of publication. This White Paper is for informational purposes only. SGS makes no warranties, express, implied or statutory, as to the information in this document. Complying with all applicable copyright laws is the responsibility of the user. Without limiting the rights under copyright, no part of this document may be reproduced, stored in or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise), or for any purpose, without the express written permission of SGS. SGS may have patents, patent applications, trademarks, copyrights, or other intellectual property rights covering subject matter in this document. Except as expressly provided in any written license agreement from SGS, the furnishing of this document does not give you any license to these patents, trademarks, copyrights, or other intellectual property. ANY REPRODUCTION, ADAPTATION OR TRANSLATION OF THIS DOCUMENT WITHOUT PRIOR WRITTEN PERMISSION IS PROHIBITED, EXCEPT AS ALLOWED UNDER THE COPYRIGHT LAWS. SGS SA 2011. / REVISED ON 2012. ALL RIGHTS RESERVED. 21

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2011 SGS SA. / REVISED ON 2012. ALL RIGHTS RESERVED. WWW.SGS.COM