Voluntary Report - public distribution

**Date:** 5/17/2006

**GAIN Report Number:** E36081

E36000

**EU-25**

**Sugar**

**The Economics of Bioethanol Production in the EU**

**2006**

**Approved by:**

![](media/image1.wmf)Norval Francis

U.S. Mission to the EU

**Prepared by:**

Mary Kate Francis

**Report Highlights:**

This report explores demand, supply, and production of bioethanol from
sugar beets and wheat in the EU. Sugar beets prove to be a good
feedstock for European bioethanol production. Because sugar beets have a
much larger yield per hectare than wheat, the EU currently produces 2
million more tons of sugar beet than wheat on 20 million less hectares
of land. Additionally, sugar beets produce more ethanol per hectare: a
hectare of sugar beets can produce 30 hectoliters more ethanol, on
average, than wheat. Also, sugar beet ethanol is shown to have a more
energy-efficient production process than wheat ethanol and promises
greater greenhouse gas reductions. This is the first in a series of
reports about ethanol production in the EU.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Brussels USEU \[BE2\]

\[E3\]

[Table of Contents]{.underline}

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . 3

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . 3

Overview of the Bioethanol Production Process . . . . . . . . . . . . .
. . . . . . . . . . 4

Demand Side of Ethanol Production in the EU . . . . . . . . . . . . . .
. . . . . . . . . . . 4

Supply Side of Ethanol Production in the EU . . . . . . . . . . . . . .
. . . . . . . . . . . . 5

*Production of Bioethanol* . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 5

*Production of Feedstocks* . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 5

*Table: Feedstock Harvest/Yield/Production* . . . . . . . . . . . . . .
. . . . . . . . . . . 5

*Graph: Use of Sugar in EU* . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 5

*Potential For Change in Sugar Production* . . . . . . . . . . . . . . .
. . . . . . . . . . . 5

Production Efficiency of Bioethanol From Wheat and Sugar Beets . . . . .
. . . . 6

*Table:* *Estimates from European Studies on Ethanol Production
Efficiency . . .* 6

*Energy Efficiency*. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . 6

*A Second Opinion on Energy Efficiency* . . . . . . . . . . . . . . . .
. . . . . . . . . . . . 6

*Greenhouse Gas Reductions* . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 7

Production Costs of Bioethanol From Sugar Beets and Wheat . . . . . . .
. . . . . 8

*Table: Engineering Cost Estimates for Bioethanol Plants in Germany*. .
. . . . . 8

*Table: Bioethanol production costs in the EU-25, Bulgaria and Romania*
. . . . . 8

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . 9

Related Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . 10

Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . 11

[Introduction]{.underline}

Alternative fuels are a widely discussed topic as of late for multiple
reasons. Firstly, there is the fact that it is undesirable, particularly
in reference to national security, to be dependent on foreign nations
for energy. For the EU, which reported in 2000 that it imports 75% of
its oil supplies, anticipates that oil imports will exceed 85% by the
year 2020, and relies on petroleum for 98% for its transport fuels, this
is a valid concern.[^1] Secondly, there is the fact that demand for fuel
is growing. Between 1985 and 2004, road transportation fuel consumption
in Western Europe (primarily the EU) grew by nearly 50%.[^2] In 2004,
Western Europe consumed over 270 million metric tons, or approximately
89 billion gallons, of road transportation fuel --- 60% as diesel fuel
and 40% as gasoline. With a significant and growing demand for fuel,
efficiently produced alternative fuels are becoming a necessity.
Thirdly, alternative fuels created from biomass, biofuels, can work in
the interests of farmers and rural development. They can expand the uses
for crops and make the work of an energy crop farmer profitable. For
these reasons, alternative fuels, particularly biofuels, have a
promising future in the European Union.

#### [Executive Summary]{.underline}

Bioethanol presents a strong alternative to petroleum in the European
Union. Before exploring the details of bioethanol production, it is
important to remember two of the EU's current commitments: one, under
Directive 2003/30/EC, the European Commission has set a guideline for
biofuels to account for 5.75% of all transport fuels by 2010[^3], and
two, under the Kyoto Protocol, the EU has committed to an 8% reduction
of carbon dioxide emissions by the end of 2012.

This paper will explore demand, supply, and production of bioethanol
from sugar beets and wheat in the EU. In terms of demand for road
transportation fuels, the EU's Directorate for Energy and Transportation
estimates that between 2000 and 2030, the EU-25 will experience an
increase in dependency on energy imports, from 47.1% in 2000 to 67.5% in
2030. It predicts that private cars and motorcycles will remain the most
important means for personal transport, with a market share of 75.8% in
2030, and the largest increase in fuel use for transport will be from
trucks. As demand for fuel is forecast to grow rapidly, the EU needs to
keep in mind its target of biofuels accounting for 5.75% of all
transport fuels by 2010. If the Member States comply with these
guidelines, the bioethanol market is estimated to grow to between 8 and
10 million tons per year by 2010. The EU has seen its production of
bioethanol grow 15.6% over the course of one year, from 424,750 tons in
2004 to 491,040 metric tons in 2005. Bioethanol from sugar beets and
wheat can prove to be effective transition fuels during this time of
growing energy demand.

In terms of feedstock supply in the EU, wheat and sugar beets are the
two crops relevant to bioethanol production. In 2004, Member States
produced 131 million tons of sugar beets and 138 million tons of
wheat.[^4] In the same year, EU production of bioethanol used about 1.2
million tons of cereals and 1 million tons of sugar beet. This indicates
that 0.4% of total cereals and 0.8% of sugar beets went toward
bioethanol production.[^5] As these are very small percentages of
production, it seems that there is room for expansion of the grain- and
sugar-- to-ethanol production processes. There is further reason to
believe that sugar will be easier to obtain in the future, due to a
reform of the European Sugar Market Organization. As of July 2006, sugar
beet production will qualify for both set-aside payments when grown as a
non-food crop and for the energy crop aid of 45 euro per hectare on
non-set-aside area; and, sugar used for the production of bioethanol
will be excluded from sugar production quotas.

In this report, sugar beets prove to be a good feedstock for bioethanol
production in the EU. Because sugar beets have a much larger yield per
hectare than wheat, the EU currently produces 2 million more tons of
sugar beet than wheat on 20 million less hectares of land. Additionally,
sugar beets produce more ethanol per hectare: a hectare of sugar beets
can produce 30 hectoliters more ethanol, on average, than wheat.

In terms of the conversion process, two studies bring insights in this
area. In comparison to gasoline production, one study shows that
bioethanol production is more energy efficient than gasoline production.
This is because the energy contained in the crops has used solar energy
to grow. A second study compares the conversion of sugar beet-to-ethanol
and wheat-to-ethanol and finds the sugar beet-to-ethanol conversion
process to be more energy efficient.

In terms of production costs, wheat-to-ethanol production is slightly
less expensive than sugar beet-to-ethanol production. The feedstock
prices and co-product values are very influential in this calculation.
All consulted studies agree that the processing costs are slightly more
expensive for wheat than sugar beets. Points of dissent among studies
regard the value of the co-product from wheat and the cost of
distribution sugar beet ethanol as opposed to wheat ethanol. These
factors are very specific and deserve further attention in a later study
of the ethanol production process in the EU.

**[Overview of the Bioethanol Production Process]{.underline}**

To produce bioethanol, the raw products can be any crops that contain
sugars. In the European Union, the most plentiful sources of sugars are
sugar beets and wheat. The first step in the bioethanol production
process is to extract the sugar from the crops. For sugar beets, a
process of crushing, soaking, or chemical treatment can remove the
sugar. In the production of sugar from sugar beets, molasses, a
sugar-containing syrup, is formed as a rest product. Molasses can also
be used as a sugar source in the ethanol production process. For wheat,
the starch is transformed into sugar (glucose) with the help of enzymes.
Once the sugar or molasses has been removed from the wheat and sugar
beets, the production process is the same for both crops. The second
step is for the sugar to undergo a fermentation process. Using yeast,
the sugar is converted to alcohol. The third step is distillation to
obtain the alcohol. The fourth step is rectification to attain the
desired alcohol concentration. In creating ethanol from sugar beets, a
co-product is vinasse, which is stored and sold to the feed industry as
a component of livestock feed.[^6] In creating ethanol from wheat, the
co-product is Distillers Dry Grain Soluble, which can be used as a
source of energy for the production process or can be sold as a
protein-rich animal feed.[^7]

**[Demand Side of Ethanol Production in the EU]{.underline}**

The European Union's Directorate General for Energy and Transport (DG
TREN) created a report in 2003 titled "EU25 -- Energy and Transport
Outlook to 2030." This report provides insight into future demand for
fuels in the EU. DG TREN estimates that between 2000 and 2030, the EU-25
will experience an average annual growth in demand of 0.6% for primary
energy (0.9 % for final energy), compared to 2.4% increase for GDP; and
an increase in dependency on energy imports, from 47.1% in 2000 to 67.5%
in 2030. They foresee private cars and motorcycles remaining the most
important means for personal transport, with a market share of 75.8% in
2030, compared to 77.7% in 2000; and the largest increase in fuel use
for transport in absolute terms is expected to be for trucks. After 2010
the fuel demand by trucks is forecast to even exceed that for passenger
cars and motorcycles.[^8] These predictions show that demand for fuels
for cars and trucks will continue to grow substantially. Knowing that
gasoline and diesel fuels are limited, non-renewable resources, it is
obvious that there will be a significant market for biofuels. Using
ethanol as an ethanol-gasoline mix, there is no need to convert current
car engines, which makes this a promising transition fuel.

Production of bioethanol in the EU grew 15.6% over the course of one
year, from 424,750 metric tons in 2004 to 491,040 metric tons in
2005.[^9] Directive 2003/30/EC sets a guideline for biofuels to account
for 5.75% of all transport fuels by 2010. If the Member States comply
with these guidelines, the bioethanol market is estimated to grow to
between 8 and 10 million tons per year by 2010. [^10] While Member
States have submitted their individual biofuel goals, many are not
striving for a percentage as high as 5.75%. MS have established goals to
increase biofuel use in the transport sector nonetheless; thus demand is
surely expected to increase, although likely not to these levels.

# Supply Side of Ethanol Production in the EU 

*Production of Bioethanol:*

Production of bioethanol, from sugar beets and wheat, in the EU in 2005
was almost 500,000 metric tons. Production grew 15.6% over the course of
one year: from 424,750 tons in 2004 and 491,040 tons in 2005.[^11]

*Production of Feedstocks:*

+------------------+-----------------+------------------+--------------+
|                  | ## Harvested    | **Yield**        | **           |
|                  |                 |                  | Production** |
+------------------+-----------------+------------------+--------------+
| ### S            | 2.2 million     | 57.4 tons per    | 126 million  |
| ugar Beets in EU | hectares        | hectare          | tons         |
|                  |                 |                  |              |
|                  | (in 21 MS)      |                  |              |
+------------------+-----------------+------------------+--------------+
| **Wheat in EU**  | 23 million      | 5.4 tons per     | 124 million  |
|                  | hectares        | hectare          | tons         |
|                  |                 |                  |              |
|                  | (in 25 MS)      |                  |              |
+------------------+-----------------+------------------+--------------+

Source: FAO Statistics, 2005

It is clear that Member States have much more land dedicated to
harvesting wheat than sugar beets. However, the sugar beet yield per
hectare is more than ten times greater than that of wheat. So, in terms
of total production, the EU-25 produces 2 million more tons of sugar
beet than wheat on 20 million less hectares of land.

![](media/image2.wmf)

Source: DG Agriculture, Sugar Infopack[^12]

The European Commission has reported that in 2004, EU production of
bioethanol used about 1.2 million tons of cereals and 1 million tons of
sugar beets. Therefore, 0.4% of total cereals and 0.8% of sugar beets
went toward bioethanol production.[^13] These are very small proportions
of land being dedicated to bioethanol. For an idea of what other
purposes sugar production goes to, the pie chart is included. However,
as this chart is for the EU-15 and pre-sugar sector reform, it is only a
general idea. There is significant potential, and several incentives,
for increased energy crop production.

*Potential For Change in Sugar Production:*

As reported by FAS/USEU[^14], on February 20, 2006, the EU adopted
significant reform measures for its sugar sector, including a 36% cut in
the internal sugar support price, elimination of the intervention system
of sugar purchases, and partial sugar production quota buyback. The
sugar reforms could impact biofuel feedstock availability since they
substantially reduce internal sugar beet production incentives. However,
much of the potential decline in sugar production could be offset by a
drop in EU sugar exports which are restricted to not more than 1.273 MMT
annually (compared with an estimated 7.1 MMT in 2005/06).

In addition, two reform provisions are likely to positively impact the
availability of sugar beets as a biofuel feedstock: first, sugar beet
production now qualifies for both set-aside payments when grown as a
non-food crop and for the energy crop aid of 45 euros per hectare on
non-set-aside area; and second, sugar used for the production of
bioethanol will be excluded from sugar production quotas.

**[Production Efficiency of Bioethanol From Wheat and Sugar
Beets]{.underline}**

***Estimates from European Studies on Ethanol Production Efficiency**:*

+-----------------+-----------------+-----------------+----------------+
|                 | **Average       | **Fuel Process  | **             |
|                 | Ethanol         | Energy          | Well-to-wheels |
|                 | Production      | Efficiency**    | GHG            |
|                 | Efficiency**    |                 | Emissions**    |
|                 |                 | (energy in/out) |                |
|                 |                 |                 | (compared to   |
|                 |                 |                 | gasoline       |
|                 |                 |                 | vehicle per km |
|                 |                 |                 | traveled)      |
+-----------------+-----------------+-----------------+----------------+
| **Whe           | 356 liters/ton  | .91             | 19%  47%      |
| at-to-Ethanol** | of feedstock    |                 | reduction      |
|                 |                 | Input: 136.5    | (average 32%)  |
| (based on 5     |                 | e.u.            |                |
| studies, '93,   |                 |                 |                |
| '93, '94, '96,  |                 | Output: 150.0   |                |
| '00)            |                 | e.u.            |                |
+-----------------+-----------------+-----------------+----------------+
| **Sugar         | 86 liters/ton   | .67             | 35%  56%      |
| be              | of feedstock    |                 | reduction      |
| et-to-Ethanol** |                 | Input: 100.5    | (average 46%)  |
|                 |                 | e.u.            |                |
| (based on 4     |                 |                 |                |
| studies, '93,   |                 | Output: 150.0   |                |
| '93, '94, '02)  |                 | e.u.            |                |
+-----------------+-----------------+-----------------+----------------+

Source: International Energy Agency[^15]

*e.u. = energy units*

This chart provides a substantial amount of information about ethanol
production. Wheat, which has an average yield of 5.4 tons per hectare in
the EU, produces an average of 356 liters of ethanol per ton of
feedstock. This would enable the production of about 2000 liters (20
hectoliters) of ethanol per hectare of wheat in the EU.

Sugar beet, which has an average yield of 57.4 tons per hectare in the
EU, produces an average of 86 liters per ton of feedstock. This would
enable the production of about 5000 liters (50 hectoliters) of ethanol
per hectare of sugar beets in the EU.

The European Biomass Industry Association makes data on "potential
bioethanol yields" for EU Member States available on its Web site. For
ethanol production from common wheat, the average liter per hectare
yield is 1,700 (17 hectoliters) -- ranging from 2,996 in Ireland to 499
in Portugal. For ethanol production from sugar beets, the average liter
per hectare yield is 5,200 (52 hectoliters) -- ranging from 7,980 in
France to 2,964 in Lithuania.[^16] These estimates lead us to believe
that the calculations above made from FAO and IEA data should be
accurate.

*Energy Efficiency:*

In terms of energy efficiency, we see that sugar beet-to-ethanol
conversion is a more efficient process that wheat-to-ethanol. For
example, if the goal is to produce 150 energy units from ethanol, it
would take an input of 136.5 energy units to achieve this from the wheat
conversion process but an input of only 100.5 energy units to achieve
this from the sugar beet conversion process.

IEA, which gathered the data for the above table, notes that case
studies that estimate better process efficiencies also tend to have
greater greenhouse gas reduction estimates. They explain that "the
feedstock-to-ethanol conversion plant efficiency is an important factor
in determining the overall process energy use, as it determines how much
feedstock must be grown, moved, and processed to produce a given volume
of ethanol."[^17] IEA also determined that the fossil fuel energy used
in production rarely amounts to more than 20% of the energy contained in
the final ethanol fuel, so that production and use of one liter of grain
ethanol typically displaces about 0.8 or more liters of gasoline, on an
energy-equivalent basis.[^18]

*A Second Opinion on Energy Efficiency:*

A study conducted by ADEME/DIREM in 2002 provides another look at fuel
process energy production efficiencies. It also compares energy input
into ethanol and gasoline production. The study looks at all of the
production stages between the extraction of raw materials and the
distribution of fuels. Thus, the main stages of production taken into
account for conventional fuels are: crude oil production, crude oil
transport, the refining process, and product transport; and for biofuels
are: cultivation (energy input and fuel consumption), feedstock
transport to biofuel production plants, industrial processing (energy
consumption and greenhouse gas emissions), and product transport.[^19]

The major finding of this study was that the energy efficiency ratios
(released energy:non renewable used energy) of wheat and sugar beet
ethanol chains are 2:1, in comparison with the value of the gasoline
chain which is 0.87:1. This means that, considering the production
stages outlined in the above paragraph, to create 150 units of wheat- or
sugar beet- derived ethanol energy, 73 units of non-renewable energy
must be used in the process. To create 150 units of gasoline energy,
184.5 units of non-renewable energy must be used in the process. This is
explained by the fact that all of the energy used to grow the crops and
most of the energy potential contained in the ethanol is from solar
energy, a non-renewable energy source, while all of the steps of the
gasoline production process are fossil fuel intensive. The study went
further to analyze the stages of the fuel production chains. "For the
wheat-to- and sugar beet-to- ethanol production chains, the agricultural
stage contributes only 20% to the energy balance. The stage of
industrial processing (processing of wheat and sugar beet into ethanol)
contributes about 80% of the balance. The transport stages hardly
contribute to the energy balances (less than 5%). Concerning gasoline
networks, it appears that the refinery phase represents 60% of the
gasoline energy balance. The phase of petroleum extraction contributes
30% to the gasoline energy balance. The transport stages represent about
10% of the energy balances." Here we see that the first step in the
production chain is more costly for gasoline than for bioethanol.
However, we see that the processing/refining step for the two fuels is
similarly the most energy-intensive step of the process. Achieving
efficiency in this step is most challenging and most essential.

*Greenhouse Gas Reductions:*

A last aspect of this production process is the greenhouse gas (GHG)
reductions that are expected to result from the consumption of
bioethanol as opposed to gasoline. IEA shows us that both ethanol
feedstocks promise reductions. Wheat and sugar beets, as plants, absorb
carbon dioxide as they grow. The ADEME/DIREM study explains, "The carbon
dioxide emitted into the atmosphere during the combustion of biomass
products does not contribute to the greenhouse effect. This emitted
carbon had been previously absorbed from the atmosphere by the plant
during its growth." While the ADEME/DIREM study determined the sugar
beet and wheat to ethanol production efficiencies to be the same, the
IEA study shows a difference in GHG reductions achieved from the two
feedstocks. According to the IEA data sets, a 19 to 49% GHG reduction
for every kilometer traveled, compared to a gasoline vehicle, can be
expected for wheat-based ethanol. A 35 to 56% GHG reduction for every
kilometer traveled, compared to a gasoline vehicle, can be expected for
sugar beet-based ethanol. Thus, it appears that sugar beets have a
greater capacity for greenhouse gas reduction, perhaps because of their
higher yield per hectare.

**[Production Costs of Bioethanol From Sugar Beets and
Wheat]{.underline}**

***IEA: Engineering Cost Estimates for Bioethanol Plants in Germany***

***(US Dollars Per Liter)***

  ------------------------- ------------ ------------ -------------- ------------
  Plant Capacity            50 Million                200 Million    
                            Liters                    Liters         

  **Raw Material**          **Wheat**    **Sugar      **Wheat**      **Sugar
                                         Beet**                      Beet**

  Feedstock cost            \$0.28       \$0.35       \$0.28         \$0.35

  Coproduct credit          \$0.07       \$0.07       \$0.07         \$0.07

  **Net Feedstock Cost**    **\$0.21**   **\$0.28**   **\$0.21**     **\$0.28**

  Labor Cost                \$0.04       \$0.04       \$0.01         \$0.01

  **Other Operating and     **\$0.20**   **\$0.18**   **\$0.20**     **\$0.17**
  Energy Costs**                                                     

  Net Investment Cost       \$0.10       \$0.10       \$0.06         \$0.06

  Total                     \$0.55       \$0.59       \$0.48         \$0.52

  **Total                   **\$0.81**   **\$0.88**   **\$0.71**     **\$0.77**
  Gasoline-per-Equivalent                                            
  Liter**                                                            
  ------------------------- ------------ ------------ -------------- ------------

Source: International Energy Agency, 2004; Data Source: F.O. Licht's,
2003

***BTG: Bioethanol production costs in the EU-25, Bulgaria and
Romania***

  ----------------- ----------- ----------- ------------- ---------- ----------- -------------
  **Raw Material**  **Wheat**                             **Sugar                
                                                          Beet**                 

                    €/L         €/GJ        €/toe         €/L        €/GJ        €/toe

  Feedstock cost    0.40        18.90       790.00        0.26       12.30       513.00

  Coproduct credit  0.15        7.10        296.00        0.03       1.40        59.00

  **Net feedstock   **0.25**    **11.80**   **493.00**    **0.23**   **10.90**   **454.00**
  cost**                                                                         

  **Conversion      **0.28**    **13.30**   **553.00**    **0.22**   **10.40**   **434.00**
  costs**                                                                        

  Blending costs    0.05        2.40        99.00         0.05       2.40        99.00
  (incl. adaptation                                                              
  of gasoline)                                                                   

  Distribution      0.01        0.50        20.00         0.10       4.70        197.00
  costs                                                                          

  **Total costs at  **0.59**    **27.90**   **1165.00**   **0.60**   **28.40**   **1184.00**
  petrol station**                                                               
  ----------------- ----------- ----------- ------------- ---------- ----------- -------------

Source: Biomass Technology Group (BTG), 2004, as published on EUBIA Web
Site[^20]

The above two production cost analyses, from IEA and BTG, facilitate
understanding of the economics of ethanol production. In terms of
feedstock cost, the most recent feedstock prices reported by F.O.
Licht's (April 2006) were 24.10 €/ton for sugar beet and 110 €/ton for
feed wheat.[^21] The BTG study based their work on 140 €/ton wheat and
26.2 €/ton sugar beet prices. Thus, in the BTG study, the sugar beet
prices are rather accurate but the wheat prices are a bit high. The BTG
numbers for feedstock cost seem to be more accurate overall, however,
than the IEA study, because IEA shows sugar beets as a more expensive
feedstock than wheat and we have found the opposite to be true.

In terms of co-product credit (the value the by-products from ethanol
production have), the studies differ greatly in their assessments. The
IEA study gives equal, 7 cent, credits to both the wheat-to-ethanol and
beet-to-ethanol processes. However, the BTG study gives the wheat
process a 15 cent credit and the beet process a 3 cent credit.
Differentiating credits like this makes more sense: the wheat-to-ethanol
process creates Dried Distillers Grains Soluble (DDGS), which is
valuable as a source of fuel or high-protein animal feed, while the
by-product of sugar beet ethanol is sugar beet pulp, which can be used
in animal feed.[^22] It is clear that DDGS is a more valuable co-product
than sugar beet pulp and thus should be credited that way. In terms of
net feedstock cost (factoring in the original cost and the co-product
credit), IEA continues to see sugar beets as the more expensive
feedstock while BTG sees the costs of wheat and sugar beet becoming
practically equal, 25 and 23 cents per liter respectively, and probably
completely equal if we consider that wheat is currently less expensive
than the base price for this study.

Next, in terms of processing costs (considering labor, energy, and
factory operation), the two studies agree that wheat-to-ethanol
processing is a bit more expensive than sugar beet-to-ethanol
processing. The BTG study considers distribution costs and finds them to
be significantly higher for sugar beet ethanol than wheat ethanol. It is
unfortunate to not have a comparison with the IEA study on this factor.
If we reference the ADEME/DIREM study, it concluded that transport costs
for any bioethanol "hardly contributed to the energy balance", so this
distinction of higher transportation costs for sugar beet ethanol is
unexpected. A supposition for this factor is that wheat is grown in all
25 Member States while sugar beets are grown in 21 and some do not have
a large yield. So, if sugar beet production is more spread out, perhaps
distribution costs are higher for this product due to the need to
transport the fuel farther to sell it.

In the end, IEA finds sugar beet ethanol production to be 6 cents more
costly than wheat ethanol, per liter of gasoline equivalent. BTG finds
sugar beet ethanol production to be 1 cent more costly than wheat
ethanol. Considering the fact that the cost of wheat feedstock is
currently less expensive than calculated by BTG, sugar beet ethanol
would probably be more than 1 cent more costly than wheat ethanol. It is
interesting that both studies come to the same conclusion: that
wheat-to-ethanol production is slightly less expensive than sugar
beet-to-ethanol production. In drawing that conclusion, the feedstock
prices and co-product credits were very influential. The processing
costs were similarly slightly more expensive for wheat than sugar beets
in both analyses. The higher distribution costs for beet ethanol than
wheat ethanol, considered only by BTG, were not explained by the study's
authors, and definitely deserve a second consideration or a further
explanation in a future study.

# Conclusion

This review of bioethanol production studies clarifies the fact that
wheat-based and sugar beet-based ethanol production are viable options
for the European Union. Firstly, the demand for biofuels in the EU is
strong, spurred both by the Commission's biofuels goals and by the
growing demand for transport fuels. In terms of supply, the technology
for ethanol production exists in the EU today and its efficiency
improves as production expands. Only a small percentage of EU cropland
is currently used for bioethanol feedstock crop production: 0.4% of
total cereals and 0.8% of sugar beets went toward bioethanol production
in 2004. With changes in the Sugar Market Organization, increased
production of sugar beets for energy purposes is very likely.

Overall, sugar beets and wheat are both viable biofuel feedstock options
for the EU, but it can be argued that sugar beets are the better option.
Firstly, their yield, 57.4 tons per hectare, is over ten times the yield
from wheat. While the liters of ethanol per hectare yield from sugar
beets is significantly less than that of wheat, sugar beets still
produce more ethanol overall due to the tons per hectare yield. IEA
found the sugar beet-to-ethanol fuel process energy efficiency to be
better than that of wheat, and beet ethanol production's estimated
greenhouse gas emission reductions are greater than those from wheat
ethanol. In terms of the production process, it was found that the
wheat-to-ethanol production is slightly less expensive than sugar
beet-to-ethanol production. However, the cost of sugar beet ethanol
distribution in the IEA's cost analysis was the factor that brought the
cost of beet ethanol production above that of wheat ethanol, yet the
difference was not explained in the study, nor was it a similar finding
in any other studies. Thus overall, the costs of wheat-based and sugar
beet-based ethanol can be weighted similarly, although certain
advantages remain for using sugar beets.

Visit our website: our website
**[http://useu.usmission.gov/agri/]{.underline}**provides a broad range
of useful information on EU import rules, food laws, agriculture and
trade policy. It enables easy access to USEU reports, trade and other
practical information.

E-mail: AgUSEUBrussels@usda.gov

**Related reports from FAS Posts in Europe**:

+---------+----------------------------------------------+-------------+
| *       | **Title**                                    | **Date      |
| *Report |                                              | Released**  |
| N       |                                              |             |
| umber** |                                              |             |
+=========+==============================================+=============+
| ##      | Biofuels Situation and Policy                | 05/12/2006  |
|  HU6005 |                                              |             |
+---------+----------------------------------------------+-------------+
| ##      | Sugar Annual                                 | 05/09/2006  |
|  E36073 |                                              |             |
+---------+----------------------------------------------+-------------+
| ##      | Nordic/Baltic Biofuels Report                | 04/07/2006  |
|  SW6012 |                                              |             |
+---------+----------------------------------------------+-------------+
| ##      | Import Duties for Biofuels                   | 04/06/2006  |
|  E36056 |                                              |             |
+---------+----------------------------------------------+-------------+
| ##      | European Commission Publishes Biofuel        | 03/10/2006  |
|  E36043 | Strategy                                     |             |
+---------+----------------------------------------------+-------------+
| E36044  | EU Agrees to One-Year Cut in Sugar Quota     | 03/10/2006  |
+---------+----------------------------------------------+-------------+
| BE6003  | Biofuels Situation in the Benelux            | 02/08/2006  |
+---------+----------------------------------------------+-------------+
| FR6005  | French Biofuel Production Booms              | 01/20/2006  |
+---------+----------------------------------------------+-------------+
| SP5030  | Biofuels Update---Spain's New Renewable      | 09/13/2005  |
|         | Fuels Plan 2005-2010                         |             |
+---------+----------------------------------------------+-------------+
| E35172  | Outlook for EU Oilseeds and Biofuels         | 09/09/2005  |
+---------+----------------------------------------------+-------------+
| E35225  | EU Agrees Sugar Reform                       | 11/30/2005  |
+---------+----------------------------------------------+-------------+
| E35094  | Grain and Feed Annual                        | 05/13/2005  |
+---------+----------------------------------------------+-------------+
| E35058  | Biofuels Situation in the European Union     | 03/23/2005  |
+---------+----------------------------------------------+-------------+
| These   |                                              |             |
| reports |                                              |             |
| can be  |                                              |             |
| a       |                                              |             |
| ccessed |                                              |             |
| through |                                              |             |
| our     |                                              |             |
| website |                                              |             |
| <http   |                                              |             |
| ://useu |                                              |             |
| .usmiss |                                              |             |
| ion.gov |                                              |             |
| /agri/> |                                              |             |
| or      |                                              |             |
| through |                                              |             |
| the FAS |                                              |             |
| website |                                              |             |
| <h      |                                              |             |
| ttp://w |                                              |             |
| ww.fas. |                                              |             |
| usda.go |                                              |             |
| v/scrip |                                              |             |
| tsw/att |                                              |             |
| acherep |                                              |             |
| /defaul |                                              |             |
| t.asp>. |                                              |             |
+---------+----------------------------------------------+-------------+

[^1]: DG TREN. "The European Union's Oil Supply." 4 October 2000.
    Available:
    http://ec.europa.eu/energy/oil/doc/2000_10_oil_supply_en.pdf.

[^2]: Schnepf, Randy. "European Union Biofuels Policy and Agriculture:
    An Overview." Congressional Research Service. 16 March 2006.
    Available: http://www.usembassy.it/pdf/other/RS22404.pdf

[^3]: Directive 2003/30/EC of 8 May 2003; published in Official Journal
    L 123/42.

[^4]: FAO Statistics 2004. Available:
    http://faostat.fao.org/faostat/form?collection=Production.Crops.Primary&Domain=Production&servlet=1&hasbulk=0&version=ext&language=EN

[^5]: EC Memo/06/65. "Biofuels Strategy: Background Memo." Available:
    http://europa.eu.int/rapid/pressReleasesAction.do?reference=MEMO/06/65&format=HTML&aged=0&language=EN&guiLanguage=en

[^6]: Nedalco. "Production Process." Available:
    http://www.nedalco.com/index2.html

[^7]: International Energy Agency. "Biofuels for Transport: An
    International Perspective." 2004. Available:
    http://www.iea.org/textbase/nppdf/free/2004/biofuels2004.pdf.

[^8]: DG TREN. EU25 -- Energy and Transport Outlook to 2030

[^9]: Biofuels Research Advisory Council. "Biofuels in the European
    Union: A Vision for 2003 and Beyond." March 14, 2006. Available:
    http://europa.eu.int/comm/research/energy/pdf/draft_vision_report_en.pdf.

[^10]: UEPA: European Union of Ethanol Producers. "The Issues of the
    Agricultural Alcohol Industry." Available:
    http://www.uepa.be/issues.php.

[^11]: Biofuels Research Advisory Council. "Biofuels in the European
    Union: A Vision for 2003 and Beyond." March 14, 2006. Available:
    http://europa.eu.int/comm/research/energy/pdf/draft_vision_report_en.pdf.

[^12]: Available:
    http://ec.europa.eu/comm/agriculture/capreform/sugar/infopack_en.pdf

[^13]: EC Memo/06/65. "Biofuels Strategy: Background Memo." Available:
    http://europa.eu.int/rapid/pressReleasesAction.do?reference=MEMO/06/65&format=HTML&aged=0&language=EN&guiLanguage=en

[^14]: The following information is taken directly from GAIN Report
    E36073: "Sugar Annual 2006."

[^15]: International Energy Agency. "Biofuels For Transport: An
    International Perspective." 2004. Available:
    http://www.iea.org/textbase/nppdf/free/2004/biofuels2004.pdf

[^16]: EUBIA. **"**Potential bioethanol yields from common wheat and
    sugar beet in some of the EU-25 member states." Available:
    http://www.eubia.org/.

[^17]: ^?^ International Energy Agency. "Biofuels For Transport: An
    International Perspective." 2004. Available:
    http://www.iea.org/textbase/nppdf/free/2004/biofuels2004.pdf

[^18]: *Ibid.*

[^19]: ADEME/DIREM. "Energy and greenhouse gas balances of biofuels'
    production chains in France." December 2002. Available:
    www.ademe.fr/partenaires/agrice/publications/
    documents_francais/synthese_bilans_energetiques_fr.pdf.

[^20]: "Bioethanol Production Costs in the EU-25 Plus Bulgaria and
    Romania." European Biomass Industry Association. Bioethanol:
    Economics. Available: http://www.eubia.org/.

[^21]: "Biofuel Feedstock Markets." F.O. Licht's. [World Ethanol and
    Biofuels Report]{.underline}. 26 April 2006.

[^22]: "Bioethanol Production Costs in the EU-25 Plus Bulgaria and
    Romania." European Biomass Industry Association. Bioethanol:
    Economics. Available: http://www.eubia.org/.