Talking Point

In the fourth quarter of 2006, the European Commission released feedback from a three-month public consultation exercise on the progress made by European Union member states in implementing the 2003 Biofuels Directive.

The Biofuels Directive requires the 25 EU Member States to set indicative targets ensuring that 2 percent of all gasoline and diesel for transport purposes (calculated on an energy content basis) include biofuels by the end of 2005 increasing to 5.75 percent by the end of 2010.

In the past few years, the Commission has released several key documents, notably the Biomass Action Plan in December 2005 and a report titled "An EU Strategy for Biofuels" in February 2006. In April, the commission announced a review of the Biofuels Directive, launching a public consultation which closed at the end of July. The commission's aim was to draw up a progress report for the European Parliament and EU Council by the end of 2006. At press time, no such report was available on the commission's Web site, although a summary of the responses gleaned from the public comment period was.

That feedback revealed a generally positive attitude towards the objectives of the Biofuels Directive-particularly among government officials and industry stakeholders-but also a sense of strong skepticism in regards to achieving the 2010 target. There was an overwhelming response in favor of amending the directive to some degree. The entire "consultation document" is available online at http://ec.europa.eu/energy.

Notably, most respondents were also in favor of a system that would introduce a standards certification process for biofuels, although the suggested extent and nature of such a system varied.

In addition to the forthcoming progress report, a strategic energy review document will be published in early 2007. It is expected that this will include concrete recommendations on biofuels and legislation on renewable energy.

There is unlikely to be any change in the trade regime for biofuels since senior EU energy officials have recently noted that non-EU biofuels suppliers are-or will be-significant to the EU's biofuels strategy, with perhaps some 50 percent of the EU's future biofuels supply coming from outside the region.

Implications for Fuel Producers
If the commission accepts the feedback from the public consultation exercise and confirms statements made by senior commission energy officials, it is likely that amendments to the Biofuels Directive will be proposed either in the commission's 2006 report or as part of its energy package to be delivered in early 2007.

These developments point to a revision of member state targets for biofuels and/or other renewables-perhaps initiating mandates-and a system of standards and certification applied to biofuels production. A certification system is more likely to be designed to ensure that the cultivation of raw materials for biofuels production meets minimum standards, rather than extending to other areas such as certification of greenhouse gas emissions. Requirements for a monitoring scheme in each member state may precede or accompany such a system.

EU member states may also be required to impose biofuels obligations on fuel suppliers as a tool to achieve national targets. Those targets would, in turn, require suppliers to include a given percentage of biofuels in the total amount of fuel placed on the market. A mandate at the EU level, requiring all fuel sold in the EU to contain minimum proportions of biofuels, is an outside possibility. Finally, labeling requirements disclosing the proportion of biofuel contained in a fuel, currently limited to fuels containing more than 5 percent of biofuel, may be extended to cover all fuels.

A further system of incentives for the development of second-generation biofuels, beyond possible support at the research and development stage, is unlikely. While most respondents were in favor of encouraging second-generation feedstock utilization (i.e., waste sources, etc.), senior commission officials have recently indicated that the commission doesn't presently intend to distinguish between the two types of production feedstocks (i.e., crops versus waste, etc.).

What is clear is that most respondents are in favor of continuing the EU's policy on the promotion of biofuels beyond 2010, even though current member state targets are unlikely to be met in 2010.

Frank Schoneveld and James Arneill are with the international law firm of McDermott Will & Emery. They are both based in Brussels, Belgium, the administrative center of the EU. Reach Schoneveld at +32(0) 2 282 35 83 or [email protected]. Reach Arneill at +32(0) 2 282 35 24 or [email protected].