Biofuels Down, Energy Saving Up in EU Climate Plan

Biofuels are down and energy efficiency measures are up as the European Union's ambitious plan to fight climate change works its way towards becoming law.

When EU leaders adopted bold headline goals last year to cut greenhouse gas emissions and promote renewable energy sources, they set a binding target of drawing 10% of transport fuel from biofuels derived from crops and biomass by 2020.

But with soaring world food prices blamed partly on competition for farmland from agri-fuel producers, biofuels are no longer the flavour of the month.

"What was hailed as a miracle solution 18 months ago is now being damned," French Ecology Minister Jean-Louis Borloo said after debating the issue with EU environment chiefs this month.

Ministers now believe – not least due to high oil prices – that the biggest opportunity for a quick win in the battle against global warming lies in energy savings.

Constructing more environmentally friendly buildings, making idle appliances consume less electricity and installing energy-saving lighting in homes, offices and streets are the New Great Hope for saving the planet and saving money.

As a result, an indicative objective adopted in March 2007 of reducing the 27-nation bloc's energy consumption by 20% by 2020 from current levels may be made mandatory.

With both candidates in the US presidential election vowing to join a global drive to curb greenhouse gas emissions, pressure is mounting on the EU to live up to its leadership claims by enacting its climate change legislation by March 2009.

That means that EU governments must reach political agreement on the package in December – a tough challenge.

Bad for credability

"It would be very bad for our credibility if Europe, that took the lead in this very important file [policy] for the future of our planet, was now to send a signal of stepping back, now that others are changing," European Commission president Jose Manuel Barroso warned last week.

Second thoughts about biofuels are not the only problem facing the EU package. Energy-guzzling industries from steel to chemicals and paper are in revolt against the prospect of having to buy carbon dioxide (CO2) emissions permits at auction, while competitors elsewhere in the world may face no such constraint.

New central European members are rebelling against plans for their electricity sector, heavily dependent on burning coal or importing Russian oil and gas to generate power, to have to pay for 100% of emissions allowances from 2012.

The Polish Government says that would force up household electricity prices by some 70% – a figure contested by Brussels – risking a political backlash.

Borloo's solution to the newcomers' problems would be to use some of the forecast €55bn ($86.36b) revenue from emissions trading to help the new member states clean up their power sector and improve energy efficiency.

However, wealthy old members such as Britain, Sweden and the Netherlands say the money will belong to national treasuries and object to the proceeds being redistributed to poorer states that already receive generous EU regional aid.

EU governments are preparing stringent 'sustainability criteria' for biofuels to be allowed on to the European market that would mandate big savings in CO2 emissions compared with fossil fuels. The rules aim to protect rainforests from destruction and preserve existing food production.

Borloo said the 10% target should embrace other alternative transport fuels such as electricity and hydrogen.

The European Parliament, which has equal legislative powers with member states on the package, is backing away from the 10% target. A key committee voted for a goal of just 4% of road transport fuels from renewable sources by 2015.

But European industrialists, who need to plan beyond this month's headlines on food prices, are not happy that the basis for long-range investment in second-generation biofuels, not made from fuel crops, has been cast into doubt.

Peter Sutherland, chairman of oil major BP, said his company had put $500m into research in US universities on biofuels and their impact on development.

"The difficulty is that at end of the day, one has to provide some assurance to shareholders that it is going to provide some economic benefit. It's not a question of altruism," he said.