Legislation proposed in the United States and Europe that aims to increase biofuels usage and reduce carbon emissions would provide incentives to the fuels with the lightest carbon footprint but could hamper the profitability of fuels that fail to meet stricter emissions standards. Regardless, SRI Consulting recently found the most immediate challenge to be that not all countries measure carbon reductions the same way.

SRI Consulting's study, titled "Carbon Certification of Biofuels Report" and released in April, looked at proposed biofuels subsidies, such as the United States' recently enacted renewable fuels standard in the Energy Independence & Security Act of 2007. Germany, the Netherlands and the United Kingdom have all proposed legislation to grant tax relief to biofuels based on a carbon certification standard set by each government. Meanwhile, the European Union proposed a separate Renewable Energy Directive, which SRI senior advisor Eric Johnson said is likely to pass in 2008. He said the legislation could be chaotic to administer, but while doling out rewards and punishment, it will create new markets for carbon certificates.

The chaos stems from differences in opinion as to which biofuels would qualify and what measurement each country would use. For example, the United States says its corn-based ethanol reduces carbon emissions by 22 percent, compared with petroleum-based fuel. However, Germany says U.S. corn-based ethanol reduces those emissions by 43 percent, and the United Kingdom says it increases carbon emissions by 27 percent. The SRI study indicates this disagreement could result in widespread confusion and public cynicism.
Johnson said Europe is aiming for a 30 percent reduction in carbon emissions by 2009, increasing that to 40 percent by 2011. The United States has set goals for a 20 percent reduction. Each country would take its benchmark measurements for the goals and then tally up the savings achieved.

The study also indicates that not only will proposed legislation dramatically alter the subsidy landscape-and the profitability of biofuels companies that base profit margins on continued governmental support-it could encourage farmers to deforest certain regions to plant food crops for biofuels. It might also foster legal challenges from biofuels lawyers and lobbyists unhappy with carbon certification rules. However, Johnson sees overall positives amid some initial uncertainty. Precedents set in this arena could translate to carbon certification schemes for other products and services.