Posted Sept. 16, 2010

A study of the future of next-generation biofuels in Europe determined that a first priority for policy makers is to introduce a European Union-wide mandate—similar to the U.S. Renewable Fuels Standard.

"Next-generation Ethanol and Biochemicals: What's in it for Europe" was released Sept. 14 by Bloomberg New Energy Finance with the support of Novozymes A/S and Royal DSM NV. The study concluded that, using agricultural residues to create biofuels and biochemicals, the 27 EU member countries could create up to one million jobs and replace between 52 and 62 percent of its annual gasoline consumption over the next decade. Beyond that, next-generation biofuels, if implemented on a large scale, will spur economic growth and reduce CO2 emissions, it said.

"The study is making a strong case for a bio-based economy," said Stephan Tanda, member of DSM's managing board. "At a time with low global growth rates, the biochemical industry could provide a significant green stimulus to the European economy with revenue of EUR 31 billion [$40.5 billion] in 2020. We think it sends a strong signal to European policy-makers that action is required."

The authors point to ag residues as a feedstock but assume that 75 percent of would be left on the field. Of the 25 percent collected, 10 percent would be used for power production, 20 percent for animal husbandry and the remaining 70 percent would be available for bioproducts, such as cellulosic ethanol. By 2020, the study saw ag residues contributing 80 percent of biomass, forestry residues would contribute 3 percent and municipal solid wastes could contribute 17 percent. "Today next-to-none of this biomass resource is harvested for bioproduct conversion," the study said. "The challenge for European policymakers will be to incentivize the collection of this biomass resource."

The Renewable Energy Directive does mandate the consumption of next-generation biofuels, the study said. However, the mandate is very small compared to the RFS2 in the U.S. "The U.S. government has definitively supported the development of its next-generation biofuels industry," it said. "The challenge will be for the EU27 member states to do something similar in the coming decade."

Optimistically, by 2020, the EU will replace 2.8 billion liters (740 million) of its annual gasoline demand with cellulosic ethanol. On the other hand, if the RFS2 is fulfilled, the U.S. could eventually be consuming between 40 and 57 billion liters, which adds up to 11 percent of its yearly transport fuel requirements.

Bloomberg New Energy Finance determined that there are 31 next-generation biofuel projects in the EU27 region—either already commissioned or in the pipeline. The U.S. has 74 such projects. "In the past five years, the U.S. government has been very proactive in its support of the next-generation biofuels industry. Developers have responded positively to this government initiative, which has resulted in twice as many projects being on the drawing board as in EU27," the study said.

The study acknowledged that attracting private capital is a difficulty in both the U.S. and the EU. "Investors are not comfortable with next-generation ethanol project risk," the study said. "This risk aversion should be surmountable once the first ten EU27 biorefineries are commissioned. The reduction in risk will open the doors to a wider investor base, which at the same time will bring the capital cost of plants closer to those now achieved by the first generation industry."

The top EU countries for next-generation ethanol supply are identified in order as France, Germany, Spain, United Kingdom, Italy and Poland. Conservatively, France was identified as having the potential to produce 15 billion liters of ethanol from biomass by 2020. This is significant because, if France has reached its demand floor for gasoline, it will consume only 12 billion liters of gas in the same year. If, however, gas consumption in the country continues to decline at the historic rate, annual gas demand could be as low as 8 billion liters. "France could therefore comfortably replace-on an energy equivalent basis-its fossil gasoline requirements with next-generation ethanol," the study said. "The EU27 biomass potential suggests most countries could begin to partially move away from fossil fuel dependence if the region supports the development of a next-generation bioproducts industry."

The study avoided the indirect land use change (ILUC) debate completely by focusing on biomass and cellulosic ethanol. "Next-generation technologies open the opportunity to avoid ILUC altogether by efficiently using all the hectares of land already used in food production and by using a small part of the residues produced in the process instead of using the food part of the crop," it said.