In 2009 the Renewable Energy Directive (“Directive”) came into force requiring that 20% of the EU’s energy needs (electricity, heat and transport) to come from renewable sources and 10% of all of the EU’s transport energy consumption to come from renewable sources. The debates that have been taking place over the past couple of years centred on how the promotion of biofuels could be achieved without causing indirect land-use change (“ILUC”).

ILUC can occur if biofuels are produced on land that is currently used for agriculture. The demand for the crops to be grown remains and therefore a new piece of land will need to be farmed. If there is no other piece of suitable land, this could mean, for example, that deforestation occurs and results in a substantial amount of CO2 emissions being released.

The 10% target has been met with reluctance from some member states, including the UK. Concerns centre around ILUC and the fact that the 35% greenhouse gas saving set out in the Directive does not take into account ILUC impacts.

THE ROAD TO AGREEMENT

Despite attempts by the European Commission to formulate a ILUC policy, it has been to date ultimately unsuccessful. In September 2013, the European Parliament adopted a resolution for a proposal for a new European Directive with the aim of improving the sustainability of biofuels and minimising their ILUC impacts. No agreement on the text was reached in December 2013 by the Energy Council.

On 13 June 2014, member states agreed the text of the ILUC Directive and to a non-binding target of 7% of renewable energy for transport from food based biofuels. The agreement includes:

  • member states encourage to promote the consumption of second and third generation biofuels and requiring them to set national targets;
  • ILUC reporting on greenhouse gas emission savings from the use of biofuels to be carried out by the Commission on the basis of data reported by member states; and
  • a review clause that includes the possibility of introducing adjusted estimated ILUC factors into the sustainability criteria.

NEXT STEPS

At the time of writing, the proposal was with the European Parliament for consideration and the new ILUC Directive will need to be adopted under the EU legislative process. Despite an agreement being reached, comments from member states show that the position is not yet set in stone. Eight countries (Estonia, Spain, France, Poland Romania, Hungary, Slovakia and the Czech Republic) have issued a statement saying that the agreed 7% target should not be increased. Whereas representatives from Italy, Ireland the Netherlands and Denmark have commented that the agreement does not go far enough.

The compromise position is welcome and the progress of the ILUC Directive will be followed closely by member states and those in the biofuel sector who can now begin to focus on the production of sustainable biofuels.

STATE AID AND BIOFUELS

In April 2014, new guidance and rules were issued in relation to state aid for environmental protection and energy which includes renewable energy and biofuels. The new guidelines are applicable from 1 July 2014 and in respect of biofuels state the following:

  • the Commission will consider that investment aid in new and existing capacity for food-based biofuel is not justified;
  • operating aid to food-based biofuels can only be granted until 2020 and such aid can only be granted to plants that started operation before 31 December 2013 until the plant is fully depreciated but in any event no later than 2020; and
  • the Commission will consider that the aid does not increase the level of environmental protection and can therefore not be found compatible with the internal market if the aid is granted for biofuels which are subject to a supply or blending obligation, unless a Member State can demonstrate that the aid is limited to sustainable biofuels that are too expensive to come on the market with a supply or blending obligation only.

Pursuant to this guidance the UK’s programme of support for renewables received State Aid approval on 23 July 2014.