European Union Directive Is Driving Biofuel Production

EU Renewable Energy Directive targets set to benefit the agriculture industry By Jonathan Turney | Published Jul 01, 2013 Bioethanol as a renewable transport fuel (RTF) is set to become one of the most important markets for British agriculture. The UK currently imports the majority of its high-protein animal feed requirements, making British farmers particularly susceptible to volatile overseas commodity markets. The bio-refining of low-grade UK wheat to bioethanol provides a solution to this, as it produces a high-protein animal feed co-product (dry distillers grains with solubles), thereby reducing the need to import protein substitutes (such as soy) from more ecologically sensitive parts of the world. At the same time, the European Union Renewable Energy Directive (RED), which aims to reduce greenhouse gas emissions, creates a huge market for RTFs. Under the EU mandate, 10 per cent of the total road transport fuel pool must come from blended RTFs by 2020. RTFs such as bioethanol are currently one of only a few commercially viable and technologically proven alternatives to fossil fuels that can realistically address unprecedented climate change. Other fossil fuel alternatives remain a long way from availability and are unlikely to achieve the same market penetration. Electric vehicles, for instance, are only expected to replace approximately 0.1 per cent of road transport fuel by 2020. Likewise, longer-term projections of the effectiveness of hydrogen fuel cells are still unproven, so are unlikely to materially contribute to the emissions-reduction strategy. The UK is well placed to be a global leader in RTF production, with a domestic surplus of low-grade feed wheat – currently exported – required in the bio-refining process and a large domestic market for petroleum. In addition, the UK has a highly skilled workforce, relative to other parts of the world. The northeast of England is particularly well suited for RTF production as it has close proximity to arable land, existing petrochemical infrastructure and a deep-water port on the Humber, all of which provide optimum conditions for the domestic production of RTFs. The UK farming and agriculture industry stands to benefit greatly from this. The high-protein animal feed, which is produced as part of the bio-refining process, can be used directly for feeding UK livestock and negates the need to import other high-protein animal feeds. Concerns have been raised in the past about the benefits and disadvantages of using food in RTF production, the so-called ‘food versus fuel’ argument. This is not relevant here since the bio-refining process actually enhances the food chain rather than erodes it, with the efficient extraction and use of the raw commodity’s constituent components being starch and protein. Moreover, a government review in 2008 also found that RTF policies had less of an impact on food prices for cereal-based RTFs than other feedstocks. Cereal crop prices ranged from a drop in price of 2.6 per cent in the EU to an increase of just 2.6 per cent in southern Africa and Brazil. On the other hand, oilseeds, the feedstock for most biodiesels, were the worst affected, with projected price increases of 50-72 per cent. Away from agriculture, the UK as a whole also stands to gain economically from increased production of RTFs. To meet the RED mandates, the UK will need to install further RTF capacity by 2020. To achieve this, the RTF industry is creating new jobs and reinvigorating manufacturing opportunities in economically deprived parts of the country, and is receiving considerable political support to ensure the UK is not perceived as being the laggard in Europe. Investment in RTFs, therefore, can provide a win-win situation for the agricultural industry, investors and the UK manufacturing industry alike, as the UK continues to work hard to fulfil its Renewable Transport Fuel obligations by 2020. Jonathan Turney is associate director at Future Capital Partners Taylor Scott International