COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

Proposal for a Directive of the European Parliament and of the Council

amending Directive 98/70/EC relating to the quality of petrol and diesel fuels and amending Directive 2009/28/EC on the promotion of the use of energy from renewable sources

TABLE OF CONTENTS

1........... Section: Procedural issues and consultation of interested parties. 5

1.1........ Background. 5

1.2........ Organisation and timing. 5

1.3........ Consultation of the Impact Assessment Board. 6

2........... Section: Problem definition. 7

2.1........ Introduction. 7

2.2........ Scene setter 7

2.3........ The characteristics of Indirect Land-use Change. 10

2.4........ Modelling of indirect land-use change emissions. 10

2.5........ Underlying drivers. 15

2.6........ Who is affected by indirect land-use change?. 16

2.7........ How are existing policies and legislation affecting indirect land-use change?. 17

2.8........ Baseline scenario for the assessment of indirect land-use change. 17

2.9........ The right to act 26

3........... Section: Policy objectives. 27

3.1........ Treaty based general objectives. 28

3.2........ General objectives. 28

3.3........ Specific and operational objectives. 29

4........... Section - Policy options. 30

4.1........ What are the possible options for achieving the policy objectives?. 30

4.2........ Option A – take no action for the time being; while continuing to monitor 30

4.3........ Option B - increase the minimum greenhouse gas saving threshold for biofuels. 30

4.4........ Option C - introduce additional sustainability requirements on certain categories of biofuels. 31

4.5........ Option D - attribute a quantity of greenhouse gas emissions to biofuels reflecting the estimated indirect land-use impact. 33

4.6........ Option E - Limit the contribution from conventional biofuels to the Renewable Energy Directive targets. 34

5........... Analysis of impacts. 35

5.1........ Assessment methodology. 35

5.2........ Option A - Take no action for the time being, while continuing to monitor 37

5.3........ Option B - Increase the minimum greenhouse gas saving threshold for biofuels. 39

5.4........ Option C – introduce additional sustainability requirements on certain categories of biofuels. 45

5.5........ Option D - Attribute a quantity of greenhouse gas emissions to biofuels reflecting the estimated indirect land-use impact. 48

5.6........ Option E - Limit the contribution from conventional biofuels to the Renewable Energy Directive targets. 57

5.7........ Combination of option D with C2 - Attribute a quantity of greenhouse gas emissions to biofuels reflecting the estimated indirect land-use impact whilst providing exemptions to those biofuels feedstocks produced under criteria covered by option C2. 60

6........... Comparison of policy options. 62

7........... Conclusion. 64

8........... Future monitoring and evaluation. 67

9........... Glossary. 68

10......... Annex I – Consultation and use of external expertise. 72

11......... Annex II – The concept of Indirect and direct land-use change emissions. 75

12......... Annex III – Model limitations and uncertainties. 76

13......... Annex IV – Results from estimating indirect land-use change with models. 80

14......... Annex V – The IFPRI-MIRAGE-BioF model: assumptions and results. 83

15......... Annex VI – Fossil fuel comparator 88

16......... Annex VII – Trends in land-use- availability and expansion globally. 89

17......... Annex VIII – Interactions between existing legislation and indirect land-use change. 94

18......... Annex IX – biofuels and related industries baseline tables. 99

19......... Annex X – Impacts on biodiversity. 103

20......... Annex XI – Monte-Carlo analysis of indirect land-use change emissions estimates. 105

21......... Annex XII – Potential for mitigating indirect land-use change emissions at project level 109

22......... Annex XIII – Assessment methodology. 111

23......... Annex XIV – Possible response scenarios to reduced biofuel availability through the introduction of additional requirements 111

24......... Annex XV – Developing indirect land-use change emission factors from the results of the Monte-Carlo analysis 116

25......... Annex XVI – Potential effects of including the estimated indirect land use change greenhouse gas emissions in the reporting of the greenhouse gas emission savings of biofuels. 118

1. Section: Procedural issues and consultation of interested parties

1.1. Background

Directive 2009/28/EC on the promotion of the use of energy from renewable sources (the "Renewable Energy Directive") established mandatory targets to be achieved by 2020 for a 20% overall share of renewable energy in the EU and a 10% share for renewable energy in the transport sector. At the same time, an amendment was adopted to Directive 98/70/EC[1] ("the Fuel Quality Directive") which introduced a mandatory target to achieve by 2020 a 6% reduction in the greenhouse gas intensity of fuels used in road transport.

The contribution towards these targets from biofuels[2] is expected to be significant. Whilst both Directives (hereafter referred to as the Directives) include sustainability criteria including minimum greenhouse gas saving thresholds, the greenhouse gas emissions associated with indirect land-use change are currently ignored by the legislation. However, the Directives request the Commission to review[3] by 31 December 2010 the greenhouse gas emissions associated with indirect land-use change and, if appropriate, propose ways to address them. The Commission published a report on indirect land-use change on the 22 December 2010[4]. That report (i) identified a number of uncertainties and limitations associated with the available numerical models used to quantify indirect land-use change; (ii) acknowledged that indirect land-use change can reduce greenhouse gas emissions savings associated with biofuels; and (iii) indicated that if action is required, indirect land-use change should be addressed under a precautionary approach. Most importantly, it concluded that the Commission would prepare an Impact Assessment based on the four options identified in the report, accompanied, if appropriate, by a legislative proposal to amend the Directives.

1.2. Organisation and timing

In order to better understand the potential indirect land-use changes and impacts associated with the production of biofuels, a number of analytical studies were commissioned by different Commission Services. An inter-service working group[5] was established in 2009 and met regularly during 2009 and 2010. Discussions in this group have provided an important input to these studies.

Following the publication of these studies in mid-2010, the group focused on the production of the impact assessment report, with meetings of the Impact Assessment Steering Committee taking place in 2011 on 3 February, 17 February, 9 March, 18 March and 16 May. The Impact Assessment is relying mainly on the work of the International Food Policy Institute (IFPRI). This work ("Global trade and environmental impact study of the EU biofuels mandate")[6] takes into account stakeholder feedback collected through the different consultation events outlined above, and has used the most recent biofuel demand estimates up to 2020 as outlined by the Member States in their national renewable energy action plans[7]. The Commission considers this work to represent the best available science with regards to the estimated indirect land-use change impacts associated with biofuels consumed in the EU. The findings of the IFPRI-report were presented to stakeholders at a meeting on 18 November 2011[8].

The Commission also carried out two public consultation exercises on approaches for dealing with indirect land-use change in 2009 and 2010. Moreover, the Joint Research Centre organised various expert consultation meetings with academics and experts in the field in 2009 and 2010. Further detail on these exercises can be found in Annex I.

1.3. Consultation of the Impact Assessment Board

The present Impact Assessment takes into account the recommendations formulated by the Impact Assessment Board on 4 May 2011 and on 24 August 2011[9]. The comments from the Board were incorporate in this Impact Assessment as follows:

· An option evaluating imposing a limit on the contribution of first generation biofuels has been introduced.

· Restructuring of text and further clarifications regarding the nature of the problem and the framing of biofuels and ILUC in a broader context (i.e. the Climate and Energy package, global and EU overall land use change and associated emissions, global trade, linkages with LULUCF, etc).

· The description of the baseline scenario was restructured and extended to better describe the state of industry sectors involved throughout the entire biofuel production and deployment chain i.e. agricultural production, processing capacity (i.e. crushing of oilseeds), production plants for biodiesel, bioethanol and advanced biofuels and developments on the car fleet, down to Member State level where possible.

· The presentation of options has been clarified and the impact analysis and presentation have been restructured to assist readability and enhance the link with the objectives.

· More detail has been provided on the assessment of environmental, economic and social impacts. Further work from the Joint Research Centre on the biodiversity impacts has also been included in the assessment.

· A glossary of technical terms has been added.

2. Section: Problem definition

2.1. Introduction

The Directives impose a number of sustainability criteria aimed at preventing the conversion of land characterised by high carbon stock and high biodiversity for biofuel production. Moreover, they also require biofuels to achieve minimum greenhouse gas emission savings of 35% compared to fossil fuels[10].

The methodology defined in the Directives to determine the greenhouse gas saving takes account of emissions associated with direct land-use change, as well as emissions coming from the production of biofuels. However, emissions associated with indirect changes in land-use are currently not included (a figure explaining both direct and indirect land-use change is provided in Annex II).

In the context of the mandatory targets set by the Directives to achieve the specified greenhouse gas savings, and the 6% reduction in greenhouse gas intensity required by the Fuel Quality Directive, the key problem addressed by this impact assessment is whether greenhouse gas emissions associated with indirect land-use change should be addressed, and if so in which way. As this impact assessment is focused on the specific requirement related to greenhouse gas emissions from indirect land-use change, it does not consider any wider environmental and social impacts associated with the promotion of biofuels. The Commission intends to consider these aspects in the Renewable Energy Directive's biennial reports to the European Parliament and the Council from 2012 onwards.

2.2. Scene setter

2.2.1. The Climate and Energy Package targets

In March 2007 the EU’s leaders endorsed an integrated approach to climate and energy policy aimed at combating climate change and increasing the EU’s energy security while strengthening its competitiveness and transforming itself into a highly energy-efficient, low carbon economy. As part of this process, a series of demanding climate and energy targets to be met by 2020 were set, including,

· a reduction in EU greenhouse gas emissions of at least 20% below 1990 levels

· a 20% of EU energy consumption to come from renewable resources

· and a 20% reduction in primary energy use compared with projected levels, to be achieved by improving energy efficiency.

Biofuels represent around 1 and 2.5 percentage points of the 20% greenhouse gas reduction and renewable energy targets respectively. However, they are, as estimated in the National Renewable Energy Action Plans[11], expected to be the major contributor towards the sub-targets for 10% and 6% renewable energy and greenhouse gas emission reductions in the transport sector to 2020, as set by the Renewable Energy and Fuel Quality Directives respectively.

2.2.2. Transport emissions reductions to 2050

The EU is committed to achieving by 2050 an 80 to 95% reduction in greenhouse gas emissions economy wide compared to 1990 levels. The recent "A Roadmap for moving to a competitive low-carbon economy in 2050"[12] foresees that the transport sector needs to reduce its greenhouse gas emissions by around 60% compared to 1990 levels by 2050 to ensure a comparable cost-effectiveness of greenhouse gas emissions abatement in that sector. This objective has been confirmed in the recently published transport white paper "Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system"[13].

Transport emissions can be reduced through measures which affect i) the amount of transport activity, ii) the energy efficiency with which that transport is carried out and iii) the greenhouse gas intensity of the energy used to perform the transport. Biofuels are one of the alternative energy carriers available that offer the potential to reduce the greenhouse gas intensity of the fuel. The use of biofuels may reduce greenhouse gas emissions provided that direct and indirect greenhouse gas emissions are lower than those from the fossil fuels they replace. Given the overall transport greenhouse gas reduction goal, the degree to which one of the three levers to reduce emissions is not deployed, the more action that will be required from the other two.

2.2.3. Global land-use and land-use change emissions

The globe has approximately 13 200 Mha of land, of which around 1600 Mha is used for cropping[14],[15]. The IPCC special report on renewable energy[16] estimates that 780 Mha of land are available for bioenergy production without irrigation worldwide, mostly consisting of unprotected grassland and woodland found in Africa (35%), Latin America (21%), North America (16%) and Europe (14%), having the potential to deliver bioenergy amounting to more than 4000 Mtoe. The estimated total biofuel use in the EU in 2020 (27 Mtoe) is in comparison expected to cause a total land use change of less than 3 Mha of land globally[17].

The IEA biofuels for Transport - Technology Roadmap assumes that 27% of total transport fuel demand will be covered by biofuels in 2050. The biofuel demand and resulting land requirements are shown for comparison below.

Figure 1: Demand for biofuels (left) and resulting land demand (right) assumed in the IEA biofuel technology roadmap (Source: IEA Technology Roadmap[18])

The production of conventional bioethanol and biodiesel increases towards 2020, and then decreases, disappearing around 2045, while bioethanol from sugar cane increases over the whole period. Land-use for biofuels increases from 30 Mha today[19] to around 110 Mha in 2050, which corresponds to around 7% of current cropland.

With regard to annual global emissions (50.000 Mt CO2)[20], annual emissions from land-use change represent around 15%[21] of the total (7500 Mt CO2). In this context, estimated indirect land-use change emissions from EU biofuel consumption in 2020 are likely to represent a very small share (0.1% if based on annual estimated emissions by IFPRI-MIRAGE-BioF at 50 Mt CO2). However, this level of emissions deserves consideration in the context of greenhouse gas emissions savings offered by biofuels. This is discussed in more detail in section 2.4.3 and 2.8.6.

2.2.4. Bioenergy and biofuel production in a global context

Bioenergy is the dominant renewable energy source, amounting to 10% (1200 Mtoe) of global primary energy supply. The IPCC estimates that the use of sustainable bioenergy will triple[22] towards 2050 in order to meet climate change objectives[23]. Careful policy making, including considerations of indirect land-use change impacts, is necessary to mobilise such quantities in a sustainable way.

Most of today's biofuels are produced from agricultural crops like maize, sugar cane and rapeseed. Total global production of biofuels reached 70 Mtoe in 2008, which represents 1.7% of global oil consumption. While less than 3% of global cropland is used for producing biofuels, the relative importance of biofuels within certain global markets is significant. For example, globally 16% of vegetable oils (rapeseed, soybean, palm and sunflower oil) are used for biodiesel, 15% of maize and some 2% of wheat is used for bioethanol[24].

Biofuels are traded globally, as can be seen in figure 2 below, which depicts the production and trade of biofuels in 2009.

Figure 2: 2009 production and trade of biofuels. Source: IPCC (see footnote 16)

The US (maize) and Brazil (sugar cane) are the main biofuel producers, producing more than the rest of the world combined. The EU is the largest global market for biodiesel because of the dominance of diesel in the car fleet. In 2009, the EU imported soy biodiesel mainly from Argentina and US, and to a significantly lesser extent palm oil from South East Asia. Bioethanol, to be blended with petrol, was imported from Brazil. Two thirds of the biofuels consumed in the EU are currently produced domestically, with the share of imports expected to grow towards 2020 (IFPRI-MIRAGE-BioF estimates that half of biofuels will be imported in 2020).

2.3. The characteristics of Indirect Land-use Change

Most of today's biofuels are produced from crops grown on agricultural land such as wheat and rapeseed. When agricultural or pasture land previously destined for the food, feed and fibre markets is diverted to the production of biofuels, the non-fuel demand will still need to be satisfied. Although this additional demand can be met through intensification of the original production, bringing non-agricultural land into production elsewhere is also possible. It is in the latter case that land-use change occurs indirectly, (hence the term indirect land-use change).

While most biofuel feedstocks are being produced in the EU, the estimated indirect land-use change emissions are mostly expected to take place outside the EU, where the additional production is likely to be realised at the lowest cost. In the case that this production is realised through the use of additional land, its conversion could lead to substantial greenhouse gas emissions being released if high carbon stock areas such as forests are affected as a result.

2.4. Modelling of indirect land-use change emissions

Estimating the greenhouse gas impact due to indirect land-use change requires projecting impacts into the future, which is inherently uncertain, since future developments will not necessarily follow trends of the past. Moreover, estimated land-use change can never be validated, as indirect land-use change is a phenomenon that is impossible to directly observe or measure. Therefore modelling is necessary to estimate its occurrence.

No macro-economic models used to estimate indirect land-use change emissions are currently capable of modelling the effects of the EU sustainability criteria, so these criteria are consequently assumed not to have any effect. As such, the models are not able to distinguish between direct and indirect land-use change. Nevertheless, the current estimates from the models are considered the best approximation for estimating indirect land-use change emissions.

Several non-economic factors influence what land-use change takes place and where it occurs. Some of these drivers are related to political choices (land-use and agricultural policy, land rights, etc.), others to institutional features (proximity to infrastructure and markets, land-use legislation). Therefore conceptual limitations will always remain. Annex III provides more details on the various modelling approaches, and the related uncertainties and limitations.

2.4.1. Results from modelling indirect land-use change

As set out above, the Commission launched a number of studies in 2009, 2010 and 2011 on indirect land-use change. Further details on the assumptions and results from these studies are provided in Annex IV. A description of one of them in particular, the IFPRI-MIRAGE-BioF model, which is the basis for the modelling establishing the baseline used in this Impact Assessment, can be found in Annex V.

The MIRAGE-BioF model, developed by the ATLASS consortium, has been improved over the last three years in consultation with the Commission to model the consumption of biofuels used in the EU. Although a number of limitations and uncertainties remain, this model has been found to be the most suitable one to estimate the indirect land-use change emissions in the EU context.

The IFPRI-MIRAGE-BioF model is a general equilibrium model, which encompasses all economic sectors and markets and their inter-actions at a global scale. The model is run in a "baseline scenario", and a "policy scenario", where the only difference is the EU biofuel policy. The resulting difference in land-use change emissions is then divided by the additionally produced biofuels. In addition, the Commission has identified a number of other sources illustrating different (indirect) land-use change emissions from different feedstocks. Figure 3 provides a summary of the most relevant modelling exercises undertaken[25]. It sets out calculations of estimated indirect land-use change emissions in gCO2/MJ for a range of different feedstocks showing the range of volumes obtained, and converted where necessary to a 20 year timeframe[26].

Figure 3: Summary of estimated (indirect) land-use change emissions. Source: various

2.4.2. Short and long term developments to deal with limitations and uncertainties

There are a range of key assumptions used in the indirect land-use change models that can have a substantial impact on the indirect land-use change estimates. A first step in dealing with this cause of uncertainty is to understand the parameters involved. The Commission's model comparison exercise and the literature review have provided an indication of a limited number of key factors that are of high importance. These include, but are not limited to: co-products, yield developments, carbon stocks and displacement/substitution of other commodities. These aspects have also been considered by the Low Carbon Fuel Standard Expert Workgroups established as part of California Air Resource Board's attempts to improve the modelling of indirect land-use change[27].

In relation to uncertainty in the model results due to data and assumptions, an approach that enables the parameters being considered to be varied randomly according to an expected probability function can be used. This so-called Monte Carlo analysis is a standard approach to dealing with uncertainty in modelling, and the method chosen by the US Environmental Protection Agency in their attempt to estimate indirect land-use change emissions.

2.4.3. Overall greenhouse gas balance of using biofuels in the EU

The emissions associated with the cultivation, processing and transport of biofuels have been extensively explored by the Commission making use of the JEC's Well to Wheel study[28], and form the basis for the greenhouse gas intensity values established in EU legislation. These values for land using first generation biofuels[29] vary from around 20 g/MJ to 60 g/MJ, and do not include emissions for either direct or indirect land-use change.

The Directives require that biofuels counted towards the targets need to save at least 35% greenhouse gas emissions compared to average fossil fuel emissions, using a fossil fuel comparator (FFC), which is currently set at 83.8g/MJ[30]. However, more recent research indicates that a higher number would be more accurate[31].

Different models assume different fossil fuels being substituted by biofuels. The literature review finds that to some degree higher production cost is linked with higher greenhouse gas emissions, but not systematically. For example, "deep water" and "artic" sources are more costly for other reasons than high energy consumption per barrel extracted crude. However, the general picture is that more expensive crudes are connected with higher emissions.

In the context of analysing indirect land-use change, a consequential lifecycle analysis is applied for the land resources, which implies that the global net effect is analysed. This is why land-use changes taking place in areas where no biofuel is produced still has an impact on the estimated indirect land-use change emissions of biofuels. Applying the same framework to fossil fuel, it is appropriate to compare overall emissions from biofuels to global marginal emissions from fossil fuels not being extracted as a consequence of using biofuels. Set out below is a simplified figure depicting the application of the above approach[32].

Figure 4: Emissions balance of biofuels in 2020, including estimated indirect land-use change emissions, compared to the emissions of fossil fuels not extracted.

The global marginal emissions from fossil fuels are expected to be higher than average emissions of fossil fuels used in the EU, the latter being reflected in the fossil fuel comparator (FFC), which in this assessment has been assumed to be 90.3 g/MJ in 2020. As can be seen from figure 4, the overall greenhouse gas emissions balance of the estimated biofuel mix compared to fossil fuels is expected to be positive in 2020, implying that the use of biofuels will save emissions also when the estimated indirect land-use change emissions are taken into account. Irrespective of the emissions from conventional sources of fossil fuels, if biofuels are to lower the overall greenhouse gas emissions from transport fuels significantly and to an increasing degree, the greenhouse gas intensity has to be reduced over time[33]. It is in this context that indirect land-use change emissions pose a challenge.

2.5. Underlying drivers

The drivers behind indirect land-use change can be summarised as the increased demand for crops resulting from increased biofuel use, coupled with poor land-use governance in areas with high carbon stock land and lack of complete accounting rules and emission targets for land-use change globally.

2.5.1. Land availability globally

The basic driver for indirect land-use change is the increased demand for agricultural crops as a result of increasing biofuel production in a situation where potential yield increases are limited and demands (most notably for food and feed) are not fully elastic. Some other key factors, such as achieving maximum profit from the production and complying with relevant legislation, are also likely to play a role in determining how the increased demand is to be realised.

The extent to which land availability is limited in various regions of the world is much debated. Compared to 1981 the harvested land has significantly declined in Europe, CIS and North America, thus suggesting that there would be low carbon stock land available[34]. With regard to the EU, it is expected that the agricultural area will continue to reduce by around 0.5 million hectares each year. Further details on this can be found in Annex VII.

2.5.2. Where is agricultural land expanding?

Although it is clear that a significant amount of land is available in certain areas of the world, it is difficult to govern the proper use of these land areas. Recent studies suggest that tropical forests were the primary sources of new agricultural land in 1980-90s, with various studies highlighting a significant role for soy production and cattle ranging, as well as palm oil, as drivers behind the expansion of agricultural land into the Amazon and South East Asia respectively[35].

The lack of effective protection of forests and carbon rich areas is another factor that allows damaging indirect land-use change to take place. If conversion of carbon rich areas such as forests and wetlands were to be limited, the risk of damaging indirect land-use change would be lower. Further information, including international developments in this area, can be found in Annex VII.

2.5.3. Accounting for land-use, land-use change and forestry (LULUCF)

In national greenhouse gas inventories (which are the basis for countries' emission commitments, such as the EU's greenhouse gas target) emissions from the burning of biofuels are reported under the energy sector as zero. This means that emissions are not added to the total national emissions and that it is assumed that any greenhouse gas emissions from land (including any direct and indirect land-use change) are captured under the "land-use, land-use change and forestry" (LULUCF) sector of the inventory[36].

So, while incentives exist to promote the use of bio-energy[37], a coherent approach to climate change mitigation in the LULUCF sector via measures in agriculture, forestry and related industries at the global level is only in the making. The LULUCF sector has a positive and significant impact on the EU's greenhouse gas emissions. The sector removes the equivalent of 9% of greenhouse gases emitted in other parts of the economy[38]. Although emissions and removals from LULUCF are reported under the UNFCCC and partially accounted under the Kyoto Protocol, the sector was left out of the EU's climate commitments for 2020 under the Climate and Energy Package[39] due to the recognition of serious deficiencies in international accounting rules of emissions from this sector (accounting for emissions and removals is only mandatory for some land use change activities including afforestation, deforestation and reforestation). Developing countries do not account at all.

Taken together, this means that emissions from land-use changes in developed countries due to agricultural expansion is unlikely to be fully reflected in the accounting, and that land-use change emissions in developing countries are not accounted for.

An international agreement on revised accounting rules for LULUCF for the second commitment period under the Kyoto Protocol post 2012 was achieved at the 17th Conference of the Parties to the UNFCCC ("COP17") in Durban in December 2011. In particular accounting for forest management activities, including harvested wood products, will be mandatory and definitions for natural disturbances and "wetland drainage and rewetting" have been established.

Following this agreement the Commission tabled a proposal on 12 March 2012 on how the LULUCF sector increasingly could be integrated in the EU's climate policy using a step-wise approach. As a first step, it proposes establishing robust, common accounting, monitoring and reporting rules mandatory for forests, forest management, croplands and grassing land as well as national LULUCF action plans (LAP). In view of the sector's specific emissions profile, the Commission proposed a dedicated legal framework, rather than including it in the EU Emissions Trading Scheme or the rules created by the Effort Sharing Decision.

The second step would be to formally include LULUCF in the EU's greenhouse gas reduction target. It is proposed to take this step when the Member States have implemented the accounting framework and it has proven to be robust.

Accounting for LULUCF would clarify the benefits of sustainable bio-energy by better reflecting related emissions, in particular resulting from the combustion of biomass, which is unaccounted for at the moment. This would strengthen the incentives provided by sustainability criteria in the context of renewable energy targets. However, implementing LULUCF accounting, monitoring and reporting in the EU is likely to have a limited effect on the estimated indirect land-use change emissions globally, as these take place mostly outside of the EU. An implementation of LULUCF accounting on a global scale, combined with commitments for reducing emissions, could significantly reduce the indirect land-use change emissions, as converting high carbon stock land would have a cost.

2.6. Who is affected by indirect land-use change?

Climate change is a global problem, while the socio-economic consequences of indirect land-use change have regional and national effects affecting the global population. Regulations to address indirect land-use change emissions in the field of biofuels may affect local communities, biofuel feedstock producers, the biofuel industry, Member States and third countries in various ways. These will be incorporated in the assessment of the policy options in section 5.

Although land-use change can have a wide range of positive and negative impacts (i.e. greenhouse gas emissions, biodiversity, economics, social issues, etc), this report focuses on the consequences for the greenhouse gas emissions of biofuels, as required by the Directives. The Commission will analyse wider sustainability impacts associated with the promotion of biofuels in the Renewable Energy Directive's biennial reports to the European Parliament and the Council from 2012 onwards.

2.7. How are existing policies and legislation affecting indirect land-use change?

Developments driven by existing legislation in a number of areas could have a significant impact on indirect land-use change. These include existing EU legislation relating to biofuels (the Renewable Energy and Fuel Quality Directives), as well as wider agricultural (i.e. Common Agricultural Policy), environmental (i.e. biodiversity, forestry, REDD+), trade (i.e. agricultural tariffs), developmental (i.e. investment into agriculture) and research (i.e. agricultural research and advanced biofuels) policies. Further details are found in Annex VIII.

2.8. Baseline scenario for the assessment of indirect land-use change

In order to be able to assess the full impacts of the policy options being considered in this assessment, this section aims to provide an overview of the EU biofuel and related industries, and the estimated indirect land-use change emissions associated with the increased feedstock demand for biofuels.

2.8.1. Overview of biofuels and related industries

The production of biofuels involves economic activity and employment all along the supply chain; in agriculture, logistics and at biofuels production facilities, but also in sectors that supply to or support biofuels supply chains, and is generally more labour intensive than fossil fuels. The expected employment related to biofuels in EU in 2020 could be around 400,000 jobs in total[40].

2.8.1.1. EU production and consumption - 2008 and 2020

Reported 2008 and estimated 2020 consumption figures for biofuels and other renewable energy sources (RES) in transport are shown in table 1 below. The 2020 figures are based on the National Renewable Energy Action Plans (NREAPS), which have been submitted by the Member States[41]. The NREAPs are also the basis for the baseline established in this Impact Assessment. Compared to the expected increase of biofuels, bioliquids are expected to play a small role in contributing towards the overall 20% RES target at around 5.5 Mtoe (4.4 Mtoe and 1.1 Mtoe going into the production of heat and power, and electricity generation respectively). This does not represent a significant increase compared to 2008 levels. The production of biofuels from waste feedstocks and advanced biofuel technologies is not expected to be significant and lower than anticipated, reaching 2.3 Mtoe (approximately 1.5 percentage point with double counting) in 2020. It appears that the current incentives, particularly,those set out in Article 21(2)[42] of the Renewable Energy Directive, are not enough to spur the desired level of investment in advanced 2nd generation biofuels.

|| 2008 || 2020

Total transport fuels (Mtoe) || 239 || 312

1st generation biofuels (Mtoe) || 10 || 26.5

of which biodiesel (Mtoe) || 8.2 || 19.8

of which bioethanol (Mtoe) || 1.8 || 6.7

|| ||

1st generation biofuel (p.p of RES-T) || 3.5 || 8.6

Biofuels from waste and 2nd generation share (p.p of RES-T) || 0 || 1.5

Renewable electricity in transport (p.p of RES-T inc) || 0.4 || 1.4

Table 1: RES in transport 2008 and 2020.

2.8.1.2. EU agricultural production

Biofuel feedstocks currently used are typically 'first generation' and include biodiesel and bioethanol derived mostly from crops, (i.e. cereals, sugars and oil crops) except those produced from waste feedstocks.

In the EU, the share of the cereal production[43],[44] consumed in the bioethanol market was around 9.4 Mt during the 2009/10 marketing year (3.2% of a total EU cereal production at 292 Mt), with wheat being the most common feedstock used. Moreover, estimated consumption of sugarbeet in the EU bioethanol market is about 6 Mt (5.4% of the total EU sugar beet production at 110 Mt)[45]. Across the EU, the largest producers of cereals and sugar beet respectively were France (70Mt and 33 Mt), Germany (50 Mt and 25 Mt), Poland (30 Mt and 11 Mt) and the UK (18 Mt and 8 Mt).

With regard to biodiesel, the share of vegetable oils destined for this market represented around 9 Mt. This equals to 38% of the estimated EU consumption of vegetable oils 23.4Mt in 2010/11[46]. Of this oils market, around 41% is imported as oil, and around 10% is imported as beans (mainly soya)[47]. EU oil crops production concerns mainly rapeseed (20.4 Mt in 2010/2011), sunflower seed (6.7 Mt) and soya (1.1. Mt). Across the EU, the largest producers of rapeseed were Germany (6.3 Mt), France (5.6 Mt), Poland (2.5 Mt) and UK (2 Mt). For sunflower, these were France (1.6 Mt), Bulgaria (1.3 Mt), Hungary (1.3 Mt), Romania (1 Mt) and Spain (0.8 Mt).

The EU-27 is traditionally a net exporter of cereals, but a net importer of vegetable oils and oilseeds (despite recently achieving record production levels of oil crops), and to a lesser extent of sugar. Current forecasts predict that this trend, with regard to cereals and vegetable oils, will continue to 2020.

2.8.1.3. Trade in biofuels

The table below shows the current and estimated split of biofuels across feedstocks in 2020.

|| 2008 (%) || Source 2008 || 2020 (%) || Source 2020*

Biodiesel || 83 || || 72 ||

Rapeseed || 57 || Europe || 40 || Europe and imports

Soya || 20 || Argentina, USA || 11 || Argentina, USA

Palm oil || 4 || South East Asia || 17 || South East Asia

Sunflower || 2 || Europe and imports || 4 || Europe and imports

Bioethanol || 17 || || 28 ||

Sugar cane || 6 || Brazil || 13 || Brazil

Wheat || 5 || Europe || 6 || Europe and imports

Sugar beet || 3 || Europe || 5 || Europe

Maize || 3 || Europe and imports || 4 || Europe and imports

Table 2: Land using biofuels currently used in the EU[48] and estimations for 2020[49].

With regard to imports vs. domestic production, IFPRI-MIRAGE-BioF estimates that biodiesel imports will grow from 0.75 Mtoe in 2008 to 2.5 Mtoe in 2020 (mostly from Indonesia, Malaysia and Latin America); whereas bioethanol imports will increase from under 1 Mtoe in 2008 to around 3.5 Mtoe in 2020 (mostly from Brazil). In addition, a total of 14 Mt of feedstocks will also be imported into the EU (rapeseed, oil palm and maize having the largest share) as a result of the additional demand[50]. Therefore, it is expected that about half of the biofuels consumed in the EU in 2020 would be domestically produced, with rapeseed being the main feedstock.

2.8.1.4. Biofuel installed production capacity

Production capacity in the EU, both installed and under construction, currently stands at 24.5 Mtoe, of which 19.8 Mtoe is for biodiesel and 4.3 Mtoe for bioethanol. With regard to its distribution across Member States, most of the EU biodiesel capacity can be found in Germany (4.5 Mtoe), Spain (3.7 Mtoe), France (2.3 Mtoe), Italy (2.1 Mtoe) and the Netherlands (1.2 Mtoe)[51]. The smaller bioethanol capacity is distributed across France (0.9 Mtoe), Germany (0.7 Mtoe), UK (0.5 Mtoe), Spain (0.4 Mtoe) and Poland (0.4 Mtoe)[52]. Advanced biofuels installed capacity is currently negligible and limited to a few pilot plants.

Although the installed biodiesel production capacity in Europe increased rapidly from 2006-7 onwards, it seems to have slowed down in 2010. In some countries such as Germany, it has shown a slight decrease in 2010, where some biodiesel facilities have been closed down, decommissioned or retrofitted to other production processes. Moreover, it is worth noting that due to a slow market uptake, capacity utilisation is at around 50%, with total 2009 European production standing at 8.2 Mtoe and 1.9 Mtoe for biodiesel and bioethanol respectively. Germany and France alone accounted for over 50% of EU biofuel production in 2009.

Other related industries include those involved in the processing of the feedstocks, particularly oil crops into vegetable oils before they are chemically treated to produce the final biodiesel product. In this context, there are some 150 oil crops processing and vegetable oils and fats production facilities across Europe, for which the trade in biodiesel products will be one of their major markets. Of a total of 13Mt of vegetable oil being pressed in the EU in 2008, the main producing country was Germany (4Mt), followed by France (1.9Mt), the Netherlands (1Mt), Spain (1Mt) and UK (0.8Mt). The main vegetable oils being produced were rapeseed oil (8Mt), followed by soya oil (2.5Mt) and sunflower oil (2Mt)[53]. Full datasets for all Member States can be found in Annex IX.

2.8.1.5. Deployment of biofuels

There is some uncertainty regarding how much biofuel can be blended with petrol and diesel, while maintaining associated warrantees from car manufactures. Based on the biofuel volumes estimated by Member States for 2020, it seems that, in volume terms, blends beyond 10% for diesel (currently at 7%) and around 15% for petrol (currently at 10%) will be needed to achieve the Renewable Energy targets EU-wide[54]. This is an important issue due to the long lead-times both in changing specification of car engines, the slow turnover of cars, and the long lead-time needed for changing fuel specifications. The use of various fuels as estimated by JEC (JRC/EUCAR/Concawe) towards 2020, taking the turnover of vehicles into account, is shown in the figure below[55].

Figure 5: Energy demand by fuel type in road transport towards 2020 (source: JEC) Heavy duty and light duty vehicles are referred to as HD and LD

The use of petrol is expected to decline, while the use of diesel increases. With regard to biodiesel blends, work is currently underway to develop standards for B10 for cars and B30 for heavy duty engines. There are also a number of plants currently producing hydrotreated vegetable oils, which can be used at any blending levels. However, the latter fuel is likely to be in demand from the aviation sector, which may limit the supply available to the road transport sector.

In the case of bioethanol, the situation remains more challenging as the petrol/diesel split is estimated to increase in favour of diesel cars towards 2020, and in addition bioethanol has a lower energy content. Work on bioethanol blend standards is ongoing. While manufacturers can produce vehicles that are compliant with EU emission standards at petrol and bioethanol blends up to 95%, the sales of these vehicles are low in the EU. Certain countries such as Brazil and Sweden have shown that vehicles can readily be built to be compatible with higher levels of oxygenates and alcohols at a low additional cost (around 100€ per vehicle or lower). It is also possible to convert heavy duty vehicles to run on bioethanol.

In terms of current supply infrastructure available for E85 in the EU, total sales were estimated to be about 100 ktoe in 2008[56]. Sweden had by far the most selling points for E85, with 1300, followed by France with 320 and Germany (100). The UK, Ireland, Hungary, Norway, Spain and the Netherlands had fewer than 20 stations in 2008. The situation in Sweden seems to be driven by current incentives which include reduced registration charges and road taxes, free parking in some cities and waived congestion charges for flexi-fuel vehicles[57].

Biofuels may also be employed in the shipping and aviation sectors. In terms of blending requirements, they have opposite features; most ships can run on most hydrocarbons, but the safety requirements for aviation are strict and only certain types of biofuels can be used. Three types of biofuels are favoured to be used in aviation engines, when blended with kerosene: Synthetic Fischer-Tropsch (FT) based kerosene, Hydrogenated Vegetable Oils (HVO) and Hydrogenated Pyrolysis Oils (HPO) produced from lignocellulosic biomass. At the moment only HVO is available, but the two other biofuels are expected to be available by 2020. So far no targets have been established for either the shipping or aviation sector. However, the aviation sector aims to use around 2Mtoe of biofuels by 2020.

2.8.2. Indirect land-use change greenhouse gas emissions assumed in the baseline

The evaluation of the policy options requires a baseline scenario that the policy options can be compared against. As discussed in section 2.3, indirect land-use change can only be estimated through modelling, and the Commission has taken the view that although a number of limitations and uncertainties remain, the IFPRI-MIRAGE-BioF is considered to be the best available estimation of the baseline. Further results as well as the key assumptions of the IFPRI-MIRAGE-BioF model are summarised in Annex V.

The ATLASS consortium has, since the publication of the Commission report on indirect land-use change last year, conducted more analysis. The latest results provide an estimate of overall land-use change emissions based on the additional 2020 biofuel volumes estimated by the Member States compared to 2008[58]. However, it is important to note that since the modelling assumes that the sustainability criteria have no effect, the baseline assumes consumption of some biofuels that might not meet the greenhouse gas savings and the land-use criteria in 2020.

It is also worth noting that no further implementation of LULUCF accounting in the run up to 2020 is assumed in the model. However, if complete accounting for land-use, land-use change and forestry, in the framework of a system of global emissions targets was implemented, this would send price signals providing disincentives for such conversions. As described in more detail in section 2.5.3 a move towards including LULUCF in the EU's GHG reduction target can only be considered once Member States have implemented the accounting framework and it has proven to be robust within the EU. Other initiatives, such as the moratorium for peatland and primary forests agreed between Norway and Indonesia, in the context of REDD+, might also impact on indirect land-use change emissions[59]. Such agreements are not reflected in the modelling.

2.8.2.1. Total estimated indirect land-use change impacts

IFPRI-MIRAGE-BioF estimates the indirect land-use change emissions from 2008 to 2020 to amount to around 500 Mt of CO2eq. These emissions are equally divided between peatland emissions (in South East Asia), losses of biomass below ground, and changes in above ground biomass. Emissions from peat conversion have a larger impact on the overall emissions attributed to oil crops, particularly for palm oil, than for bioethanol crops. The range of estimated indirect land-use change emissions is 24 g/MJ to 50 g/MJ, with an average of 38 gram CO2eq/MJ based on the assumed biofuel mix. This estimate of indirect land-use change emissions is based on conversion of around 1.7 Mha of land, which is taking place in a range of regions globally, mostly in Brazil and the Commonwealth of Independent States (CIS).

With regard to the estimated biodiversity impacts, IFPRI-MIRAGE-BioF study showed that this new cropland is taken from pasture (42%), managed forest (39%), primary forest (3%) and savannah and grassland (16%), which will have biodiversity and wider environmental impacts. A qualitative estimation of these impacts made by the JRC using the Mean Species Abundance (MSA) values provided by the Global Biodiversity Model (GLOBIO 3)[60],[61], shows that the largest biodiversity losses will be associated with the conversion of primary forest, and savannah and grassland (both at 100% MSA), pasture land (70% MSA) and managed forest (50% MSA) in order of decreasing significance. Cultivated and managed areas receive a score of 10% MSA under the same classification[62]. Please see Annex X for more detail.

|| Forest managed || Forest primary || Pasture || Savannah Grassland || Other || TOTAL

Brazil || 3% || 1% || 10% || 3% || 0% || 18%

Central America and Caribbean || 0% || 0% || 1% || 0% || 0% || 1%

China || 6% || 0% || 2% || 0% || 0% || 8%

CIS || 11% || 0% || 9% || 3% || 0% || 23%

EU27 || 4% || 0% || 1% || 2% || 0% || 7%

Indonesia and Malaysia || 5% || 0% || 2% || 0% || 0% || 7%

Latin America || 3% || 1% || 1% || 4% || 0% || 9%

Rest of the OECD || 1% || 0% || 1% || 1% || 0% || 3%

Rest of the World || 4% || 0% || 4% || 1% || 0% || 9%

Sub-Saharan Africa || 1% || 0% || 11% || 1% || 0% || 13%

USA || 1% || 0% || 0% || 1% || 0% || 2%

TOTAL || 39% || 3% || 42% || 17% || 0% || 100%

Table 3: Percentage land converted by type and world region. Source: IFPRI-MIRAGE-BioF

2.8.2.2. Estimated indirect land-use change impacts by feedstock

The overall estimated indirect land-use change emission impact is the aggregate of a set of sub-results, such as country of origin and feedstock. It is therefore relevant to present the crop-specific indirect land-use change emission estimates, as these are components of the overall baseline impact. The IFPRI-MIRAGE-BioF model has recently been combined with a Monte Carlo simulation, to provide a better description of the probability distribution of the uncertainty associated with the variables. More information on this analysis can be found in Annex XI.

Figure 6: Results of the Monte-Carlo analysis: estimated indirect land-use change emissions (gCO2/MJ)- under scenario of current trade policy. The bars indicate 1st and 99th percentile, while the boxes are 25th and 75th percentiles.

It is important to note that these crop specific values are estimated based on the increase of biofuel consumption towards 2020 compared to the existing consumption in 2008. They are therefore not representative for the around 10 Mtoe already consumed in 2008. Indeed, it is pointed out that for rapeseed, which is the most important feedstock used in 2008 (5.7 Mtoe out of a total of 10 Mtoe), the average land-use change is significantly lower in the baseline.

With regard to the values for cereal crops, it should also be born in mind that some of the assumptions on the yields of EU wheat and US/Brazil maize are considered strongly optimistic. Although these assumptions can significantly influence the estimated indirect land-use change emissions for these crops, they have not been included in the Monte Carlo analysis.

2.8.2.3. Establishing a greenhouse gas emissions baseline for biofuels in 2020

In order to establish a greenhouse gas emissions baseline for biofuels, it is necessary to compare the estimated indirect land-use change emissions to the expected direct greenhouse gas savings from substituting fossil fuels in 2020. In this context, assumptions regarding the expected improvements in greenhouse gas emissions performance of biofuels, as well as changes in the carbon intensity of fossil fuels to 2020 need to be made.

With regard to the expected improvements in greenhouse gas emissions performance of biofuels towards 2020, COWI[63] estimated how various feedstocks would develop. However, those values do not take into account more recent developments (such as the ETS proposals for ammonia and nitric acid plants in EU), and do not cover improvements for all feedstocks. As such, these have been adjusted by JRC to allow for comparison across all biofuels[64]. The results combined with the estimated indirect land-use change emissions are summarised in the table below[65].

|| Average estimated ILUC emissions || Direct emission savings || Total emissions

Maize || 10 || -57 || -47

Sugar beet || 7 || -63 || -56

Sugar cane || 15 || -70 || -54

Wheat - Not specified || 14 || -40 || -26

Wheat - Natural gas/CHP || 14 || -56 || -43

Wheat - Straw/CHP || 14 || -68 || -55

Waste/2nd generation bioethanol - land using || 15 || -73 || -58

Waste/2nd generation bioethanol - non-land using || 0 || -81 || -81

Waste/2nd generation biodiesel - land using || 15 || -85 || -69

Waste/2nd generation biodiesel- non-land using || 0 || -81 || -81

Palm oil || 54 || -39 || 15

Palm oil with methane capture || 54 || -61 || -7

Rapeseed || 55 || -50 || 5

Soybean || 56 || -43 || 13

Sunflower || 54 || -58 || -4

Table 4: Typical annual direct savings compared to estimated indirect land-use change emissions per crop (gCO2/MJ). Source: ATLASS (2011), COWI and Commission's calculations

2.8.2.4. Sensitivity of the baseline scenario

The uncertainty of estimating indirect land-use change implies that several sensitivities should be investigated. In the assessment of the options, sensitivity analysis is limited to the changes of the assessment of the efficiency of the different options by the range of estimated indirect land-use change impacts (5th and 95th percentiles) from the Monte Carlo analysis (see figure 6). With regard to the average estimated indirect land-use change emissions at 38 g/MJ respectively, the 5th and the 95th percentile values of the distribution are a range of 24 g/MJ to 50 g/MJ[66].

2.9. The right to act

Articles 19(6) and 7d(6) of the Directives particularly require the Commission to address the issue of indirect land-use change, as explained in Chapter 1. The overall objective of the Fuel Quality and Renewable Energy Directives is to contribute to the goal of reducing economy-wide greenhouse gas emissions through the promotion of renewable energy sources. As a way to achieve that, they create an EU-wide fuel market and market for renewable energy, the Member States per se are not able to meet these challenges individually for the following reasons:

· the sustainability criteria of the Directives have their legal basis in Article 114 of the Treaty: internal market. The indirect land-use change impacts necessarily have transnational aspects which cannot be dealt with satisfactorily by Member States, when the EU wants to establish a functional EU-wide market for biofuels. Since there will also be international trade in biofuels with countries outside the EU, this can also not be properly regulated at Member State level.

· it has to be considered whether and how the objectives could be better achieved by action on the part of the EU: the “test of European added value”. The rationale for European action in the field of biofuels has already been decided with the adoption of the Fuel Quality and Renewable Energy Directives. This stems from the transnational nature of the identified problem and the desire to create a single market in renewable and lower greenhouse gas intensity energies for transport.

For these reasons, the policy objectives set out in section 3 of the present Impact Assessment report cannot be sufficiently achieved by actions of the Member States alone, but have to be coordinated and harmonised across the EU.

2.9.1. Precautionary principle

Article 191(2) of the Treaty states that EU policy on the environment shall be based on the precautionary principle. In view of this, the Commission noted in its December 2010 report on indirect land-use change that action should be based on the precautionary approach.

3. Section: Policy objectives

As explained in more detail in section 2.1, the Directives contain a number of sustainability criteria which are aimed at preventing direct land-use change of areas of high carbon stock and high biodiversity value for the production of biofuels, as well as setting minimum greenhouse gas emission savings compared to fossil fuels[67]. Although the current greenhouse gas emissions performance methodology takes account of emissions associated with direct land-use change, as well as emissions coming from the production of biofuels, it does not include emissions from indirect land-use change.

In response to the requirement for the Commission to review the impact of indirect land-use change on greenhouse gas emissions and to propose ways to minimise them if appropriate[68], the Commission published a report[69] in December 2010 which (i) identified a number of uncertainties and limitations associated with the available numerical models used to quantify indirect land-use change; (ii) acknowledged that indirect land-use change can reduce greenhouse gas emissions savings associated with biofuels; and (iii) indicated that if action is required, indirect land-use change should be addressed under a precautionary approach. In view of the above, the fundamental policy objective for the Commission's continued work on indirect land-use change is to provide a full response to the request laid down in the Directives[70]:

The Commission shall, by 31 December 2010, submit a report to the European Parliament and to the Council reviewing the impact of indirect land-use change on greenhouse gas emissions and addressing ways to minimise that impact. The report shall, if appropriate, be accompanied, by a proposal, based on the best available scientific evidence, containing a concrete methodology for emissions from carbon stock changes caused by indirect land-use changes, ensuring compliance with this Directive, in particular Article 17(2).

Such a proposal shall include the necessary safeguards to provide certainty for investment undertaken before that methodology is applied. With respect to installations that produced biofuels before the end of 2013, the application of the measures referred to in the first subparagraph shall not, until 31 December 2017, lead to biofuels produced by those installations being deemed to have failed to comply with the sustainability requirements of this Directive if they would otherwise have done so, provided that those biofuels achieve a greenhouse gas emission saving of at least 45 %. This shall apply to the capacities of the installations of biofuels at the end of 2012.

The Articles and the corresponding recitals[71] allude to the development of a calculation methodology for capturing indirect land-use change emissions. However, due to the right of initiative, the Commission wishes to consider other options which the Commission believes can also meet the policy objectives in a suitable way. The Commission evaluates four different options in this Impact Assessment, as laid down in chapter 4; "Policy Options".

To enable the assessment of the options, it is desirable to understand the general policy objectives and narrow these down to a description of more specific, operational objectives.

3.1. Treaty based general objectives

The EU's policies on the promotion of the use of biofuels have always been developed in the context of EU energy policy and EU policy aimed at protection of the environment. The development of new and renewable forms of energy is specifically foreseen as an objective in the Treaty and it is clear that this goal is pursued with regard to the need to enhance security of energy supply and that of preserving and improving the environment. The Treaty foresees that environmental protection must be built into all policy areas and action to reduce climate change is specifically foreseen within the Treaty as an environmental objective.

The provisions on sustainability criteria, including the requirement to analyse indirect land-use change emissions, are based on the functioning of the internal market provisions of the Treaty. Any legislative proposal that addresses indirect land-use change emissions must therefore also be based on these provisions.

3.2. General objectives

The general objectives are those of the Directives. In context of the Renewable Energy Directive, Recital 65 summarises the general environmental objective related to the use of biofuels:

Biofuel production should be sustainable. Biofuels used for compliance with the targets laid down in this Directive, and those that benefit from national support schemes, should therefore be required to fulfil sustainability criteria.

The content of Recital 65 is reflected in Article 17 of the Directive, which requires biofuels to be sustainable, and in particular Article 17(2) thereof, which in context of greenhouse gas savings requires biofuels to save at least 35% compared to fossil fuels, increasing to 50% in 2017 and 60% in 2018 for new installations.

The objectives of the Fuel Quality Directive in relation to the use of biofuels are reflected in Recitals 9 and 10:

Biofuel production should be sustainable. Biofuels used for compliance with the greenhouse gas reduction targets laid down in this Directive should therefore be required to fulfil sustainability criteria.(…).

Suppliers should, by 31 December 2020, gradually reduce life cycle greenhouse gas emissions by up to 10 % per unit of energy from fuel and energy supplied. This reduction should amount to at least 6 % by 31 December 2020, compared to the EU-average level of life cycle greenhouse gas emissions per unit of energy from fossil fuels in 2010, obtained through the use of biofuels, alternative fuels and reductions in flaring and venting at production sites.(…).

Recital 4 is reflected in Article 7b, which sets identical sustainability requirements as Article 17 of the Renewable Energy Directive. Recital 10 is reflected in article 7a which states that Member States shall require fuel suppliers to reduce as gradually as possible life cycle[72] greenhouse gas emissions per unit of energy from fuel and energy supplied by up to 10 % by 31 December 2020, compared with the fossil fuel baseline representing 2010.

3.3. Specific and operational objectives

As described in section 2.1, this impact assessment is focused on the specific requirement in the Directives related to greenhouse gas emissions from indirect land-use change and does not consider any wider environmental and social impacts associated with the use of biofuels. As such, the general objectives presented above translate into the following specific/operational objective to:

Minimise the impact of indirect land-use change on greenhouse gas emissions of biofuels, within the wider policy objectives of the targets that by 2020 at least 10% of transport fuels are renewable and that greenhouse gas intensity in road transport fuels is reduced by at least 6% compared to 2010.

The policy options will be evaluated in context of the extent to which the options fulfil this specific objective.

4. Section - Policy options

4.1. What are the possible options for achieving the policy objectives?

Further to the option referred to in the Directives, the development of a concrete methodology for emissions from carbon stock changes caused by indirect land-use change from biofuels that could be included in the greenhouse gas calculation, the Commission wishes to consider the effectiveness of a number of options aimed at minimising indirect land-use change impacts. The policy options, including those initially set out in the Commission's report on this topic adopted in December 2010, are:

A. take no action for the time being, while continuing to monitor,

B. increase the minimum greenhouse gas saving threshold for biofuels,

C. introduce additional sustainability requirements on certain categories of biofuels,

D. attribute a quantity of greenhouse gas emissions to biofuels reflecting the estimated indirect land-use impact.

E. limit the contribution from conventional biofuels to the Renewable Energy Directive targets to current production levels.

4.2. Option A – take no action for the time being; while continuing to monitor

This option refers to the Commission's bi-annual monitoring and reporting of impacts, including indirect land-use change, as required by the Renewable Energy Directive[73], the first of which is due in 2012. The option also implies continued monitoring of the scientific developments related to estimating indirect land-use change emissions.

During the latest consultation on policy options, option A was preferred by those stakeholders who believed that the current state of development of the models was not appropriate to base policy approaches upon. This included most of the industry, farmers' associations and biofuel producing third countries.

4.3. Option B - increase the minimum greenhouse gas saving threshold for biofuels

This option consists of increasing the current minimum greenhouse gas savings thresholds provided in the Directives[74], currently at 35% compared to average fossil fuels. According to the Directives, this requirement is increased to 50% in 2017, and 60% in 2018 for installations that started production in 2017.

Option B aims at a) compensating for the estimated indirect land-use change emissions through requiring higher direct savings, and thereby improving the overall greenhouse gas performance of the biofuels consumed and; b) reducing indirect land-use change emissions through raising the threshold to such a level that many of the biofuels with estimated large indirect land-use change emissions are excluded.

The increased level of the threshold should be achievable for a set of feedstocks, while at the same time maximizing the direct greenhouse gas savings. The level must be technically feasible for a range of feedstocks, but require improvements beyond what is required by the Directives today. A discussion of the exact level of the threshold is set out in chapter 5.

This option implies changing Article 17 of the Renewable Energy Directive and Article 7b of the Fuel Quality Directive.

Option B was not supported by any particular stakeholder group during the last consultation exercise, as stakeholders generally favoured option A or option D.

4.4. Option C - introduce additional sustainability requirements on certain categories of biofuels

This policy option consists of introducing additional sustainability requirements aimed at mitigating the risk of indirect land-use change emissions. As such, compliance with a number of additional criteria could be required at national (country) level or at project/farm level as detailed in sub-options C1 and C2 below. These options are very different in their approach and are therefore, being treated as two separate sub-options. Both these options require changing Article 17 of the Renewable Energy Directive and Article 7b of the Fuel Quality Directive.

4.4.1. Option C1- country level actions

Given that indirect land-use change emission impacts associated with biofuels manifest themselves through unwanted direct land-use change across countries, and often as a result of inadequate land governance, option C1 is aimed at addressing such negative effects by improving land-use governance and protection of high carbon stock lands. More specifically, under option C1 biofuel producing countries including Member States, are requested to implement LULUCF methodology based (see chapter 2.5.3 for description) reporting (if not already in place) and protection of high carbon stock land. Simultaneously, efforts to increase the supply of biofuels with low risk of indirect land-use change emissions at a national level could be implemented.

To guarantee that option C1 reduces indirect land-use change emissions completely the option would need to be implemented globally, thus preventing any leakage. However, indirect land-use change emissions could be reduced and even over-compensated if the implementation of option C1 is successful, as it may reduce indirect land-use change emissions from other commodities. An example of this is provided below, where peatland emissions in Indonesia are halved.

Stopping conversion of peatlands in Indonesia would have a considerable impact on the estimated indirect land-use change emissions from all oil crops, as their production is assumed by the models to cause indirect conversion of peatland (i.e. more than the third of the estimated indirect land-use change emissions are from peatland). Moreover, the protection of peatland would also limit the land-use change emissions from other agricultural commodities (both directly and indirectly), as demand for biofuels is only one of many drivers for increased production of vegetable oils globally. Wetlands International[75] reports that emissions from peatlands in Indonesia alone in 2008 amounted to 500 Mt. This implies that one year of emissions from peatland in Indonesia is ten times higher than the estimated annual indirect land-use change emissions in 2020. However, the overall effectiveness of this option relies on whether countries choose to comply or not, which is outside the control of the EU and therefore it is not possible to guarantee that the results will develop in a certain way. This is further analysed in chapter 5.

During the latest consultation on policy options, most of the industry and farmers' associations supported the use of international action to address indirect land-use change emissions, although not necessarily in the same terms as outlined in this sub-option.

4.4.2. Option C2- project level actions

This sub-option refers to practices that could prevent indirect land-use change by producing feedstocks without the need for additional land. Potential mitigation measures would include:

(a) Using land without provisioning services[76] that would be unlikely to be taken into production in the absence of biofuel demand (i.e. typically land that either requires some form of remediation prior to being used or where significant barriers exist). Expanding production on unused land may lead to direct land-use change, but the latter would be addressed by the current sustainability criteria and therefore directed to those areas where effects are acceptable.

(b) Increasing yields above projected future trends which would not have happened in the absence of biofuel demand. This could lead to the production of biofuel feedstocks without increasing the pressure on land and therefore limiting indirect land-use change emissions. In this case, only the additional feedstock production should be considered as meeting this requirement.

(c) Integrating biofuels and non-bioenergy production systems (i.e. land-used for cattle farming) in ways that lead to a higher overall land productivity. Again this integration would be additional to what would have happened in the absence of the biofuel demand.

In order for indirect land-use change to be prevented, it would also be necessary to ensure that the actions put in place are additional and that would not have been implemented in the absence of these criteria. Both the reporting and verification processes could be foreseen to be incorporated into the existing reporting and verification systems established under the sustainability scheme, which already requires the collection of detailed information across the supply chain by economic operators or managers of sustainability schemes on land-use and cultivation practices in order to demonstrate compliance[77]. In addition, the process for verification would require that an assessment at project level is carried out before the project is approved, although it would seem reasonable to assume that additionality would only need to be proven once within the legislative period.

The literature[78] indicates that the potential for producing biofuels in this way is significant, and that the share of non-EU crops would increase if this option was to be implemented (i.e. sugarcane, soy and palm oil) as opportunities for intensification seem to be greater in certain world regions (i.e. Brazil, South East Asia).

The full details for implementing these criteria would need to be developed at a later date. A more detailed description of these measures as well as a summary of their potential can be found in Annex XII.

Most NGOs supported sub-option C2 during the last consultation in combination with option D. The rationale behind this approach is that biofuels produced under the conditions outlined above, would in theory mitigate the risk that their production would trigger indirect land-use change. Option D was by these stakeholders believed to be a strong incentive for the actions described under sub-option C2 to be implemented, which in some cases would require significant changes in current production practices.

4.5. Option D - attribute a quantity of greenhouse gas emissions to biofuels reflecting the estimated indirect land-use impact.

This is the option referred to in the Directives, which would require incorporating estimated indirect land-use change emissions values in the reporting of existing greenhouse gas methodology[79],[80], including ensuring compliance with minimum greenhouse gas thresholds[81]. A new Annex VIII would need to be added to the Renewable Energy Directive and a new Annex V to the Fuel Quality Directive.

This option implies incorporating the estimated indirect land-use change emissions of biofuels into the emission calculation. However, there are a number of issues that need to be described, as the use of a factor may not be appropriate in some circumstances (i.e. non-land using feedstocks such as algae).

These various elements are set out below:

· Evaluate the introduction of different estimates of factors (eiluc) into the greenhouse gas calculation representing the estimated indirect land-use change greenhouse gas emissions and taking into account the results of the Monte Carlo analysis from the IFPRI-MIRAGE-BioF.

· Define the situations where eiluc should have a value of zero because there is no displacement of agricultural activity. This is likely to be appropriate for the following circumstances,

i.) Waste and residual materials are used as feedstocks.

ii.) The feedstock does not require land for its production (i.e. algae).

iii.) The production of the feedstock has led to 'direct land-use change', and as such an el value has been calculated in accordance to greenhouse gas emissions methodology.

When assessing this option, consideration will be given at setting the indirect land-use change emission factors eiluc at levels which mitigate/anticipate the risk of a possible model i) overestimation (50%, 25%, 5% percentiles) and ii) underestimation (50%, 75%, 95% percentiles) of crop-specific indirect land-use change factors. In addition, consideration will be given to the degree of disaggregation these factors should be set at (i.e. feedstock specific or crop group level i.e. oil crops, sugars and cereals).

As with the current methodology for default greenhouse gas emissions values, it would be required to consider whether a review process[82] needs to be established within the Directives for updating these values. Consideration will be given as to whether safeguards for investment from the introduction of this particular option, as stated in the Directives[83], should be introduced.

Most NGOs and a few industrial stakeholders from the non-biofuel sectors supported this option during the last consultation. This was also the most supported option during the international scientific expert workshop with academics and experts organised by the JRC in November 2010.

4.6. Option E - Limit the contribution from conventional biofuels to the Renewable Energy Directive targets.

This option aims at minimising the indirect land use change impacts of biofuels by limiting the amount of conventional biofuels that can be counted towards the Renewable Energy Directive targets to current production levels. The risk of indirect land use change is mostly associated with conventional biofuel feedstocks grown on high yielding agricultural land. To limit the consumption of such biofuels therefore also limits the risk of indirect land-use change emissions. Moreover, such a limit will require that the remaining amount of biofuels needed to achieve the 10% Renewable Energy Directive transport target would need to come from advanced biofuels with lower indirect land use change risks, which will significantly improve the biofuel mix that can be expected in 2020.

This option implies changing Article 3 of the Renewable Energy Directive.

Although Option E was not included as one of the shortlisted options by the Commission in the last consultation exercises, options aimed at limiting the amount of conventional biofuels while increasing the incentives for advanced biofuels were favoured by NGOs and certain industrial stakeholders.

5. Analysis of impacts

5.1. Assessment methodology

5.1.1. Introduction

The baseline estimated indirect land-use change greenhouse gas emissions impacts are outlined in chapter 2. Consequently, the different policy options assessed here focus on potential ways of minimising these impacts. The assessment focuses on the impacts resulting from the potential changes in feedstock availability[84] following intervention.

The assessment of the policy options has been carried out according to their effectiveness, in achieving the policy objectives in chapter 3[85] and their likely wider environmental, economic[86] and social impacts, as well as their consistency with other EU policies. Further detail can be found in Annex XIII.

The particular question of administrative burden and associated costs is addressed to the extent possible for options B and C2. In the case of option B, this is because it is not possible to know precisely to what extent certain feedstocks will be excluded (in which case there would be economic impacts but no administrative costs) or the extent to which economic operators would need to report actual greenhouse gas emissions values to meet increased requirements. With regard to option C2, the potential certification system is still being developed and therefore some costs from current pilots are presented as an indication only. Option C1 has administrative costs related to the verification of LULUCF reporting. All other options are considered to have insignificant additional administrative costs because they are all based on the current framework for verifying compliance with existing sustainability criteria under the Directives[87].

5.1.2. Development of scenarios

In most cases, it is expected that options will limit the availability of qualifying biodiesel feedstocks as these typically present both higher direct and estimated indirect land-use change emissions. In order to compensate for the reduced availability of biodiesel and so to still achieve the targets of the Directives, the contribution from all the available Renewable Energy transport technologies (i.e. bioethanol, advanced biodiesel and electric cars) is increased by similar amounts to maintain the 5.4% reductions in greenhouse gas intensity towards the Fuel Quality Directive found in the baseline. It should be stressed that this is a purely theoretical exercise which does not necessarily lead to realistic results. Alternatively, but not assessed here, a higher contribution from the use of LPG and venting and flaring reductions could contribute towards the carbon intensity reduction targets in the Fuel Quality Directive[88].

With regard to the final biofuel mix, key factors are expected to include the ability of the biofuel industry to improve the greenhouse gas emissions performance of pathways associated with conventional feedstocks (i.e. particularly oil crops) in order to comply with higher greenhouse gas emissions standards, and the ability of technologies using alternative feedstocks (i.e. non-land using feedstocks) to come to market within given timescales. In those cases where the availability of conventional biodiesel feedstocks is severely restricted, a number of car fleet compatibility issues associated with higher bioethanol blends or higher shares of certain feedstocks, such as palm oil, may arise. Further information on the current situation can be found in Annex XIV.

5.1.3. Assessment limitations

In order to appropriately interpret this assessment, the following limitations/simplifications should be born in mind;

· in reality, the indirect land-use change emissions could be higher or lower. As discussed in chapter 2 and particularly Annex III, there are still, and will possibly always remain, considerable limitations and uncertainties related to estimating indirect land-use change emissions. However, given the need to analyse the issue in a quantitative manner, it has been necessary to use the latest results from IFPRI-MIRAGE-BioF as the baseline.

· the modelling of indirect land-use change emissions assumes that the sustainability scheme has no effect. Still, in this assessment it is assumed that it actually reduces both direct emissions and indirect land-use change emissions through a reduction in consumption in the EU of biofuels from a particular feedstock, according to the estimates made by IFPRI-MIRAGE-BioF.

· although measures considered here for biofuels are also applicable to bioliquids, no calculations have been specifically made using their fossil fuel comparators[89]. This is not likely to give rise to any leakage issues (i.e. where excluded biofuels may be diverted to bioliquid market), as the assumed fossil fuel comparator value for 2020 here (90.3 g/MJ) is very close to the highest value provided for bioliquids.

· the question of whether a particular feedstock passes or not is a simple yes or no question. However, there are several conditions that determine the greenhouse gas emissions performance associated with different feedstocks, including potential improvements in greenhouse gas emissions performance, and hence whether they can ultimately meet the minimum thresholds set out in the Directives. Moreover, the potentially increased attractiveness of e.g. the severely degraded/heavily contaminated land greenhouse gas bonus[90] is not assessed.

· the analysis is based on the year 2020 (i.e. for analytical purposes, as all the assumptions made are related to that year). All indirect land-use change emissions are assumed to be mitigated when action is taken in 2020. This is an oversimplification, as indirect land-use change impacts are of cumulative nature and irreversible in the period to 2020[91]. Moreover, it should be noted that although the assessment is done for only one year, the indirect land-use change emissions included in the greenhouse gas emissions balance of biofuels are averaged over a 20 year period in accordance with the existing methodology in the Directives.

· some of the options result in biofuels made from certain feedstocks being unable to meet the sustainability criteria of the Directives. The deficit that this might lead to would need to be covered by other feedstocks or means to comply with the targets. A range of factors, such as costs, technical blending possibilities, technical vehicle specifications and infrastructure developments influence how the deficit can or cannot be covered. None of these factors have been assessed in detail in this Impact Assessment.

Given all these uncertainties, it is important to bear in mind that the results presented in this section should be used with the utmost caution.

5.2. Option A - Take no action for the time being, while continuing to monitor

Option A is the "no policy change" option, which implies that no further action to mitigate indirect land-use change emissions is taken, while continuing to monitor the development of key factors determining the indirect land-use change impact and the science needed to assess the scale and nature of the phenomenon.

5.2.1. Effectiveness in reducing greenhouse gas emissions

The main results in terms of reducing greenhouse gas emissions are shown in the table below.

Direct emissions only- biofuels only || Average emissions 2020 (g/MJ) || 35

Average emission savings 2020 [%] || 61%

Total direct emissions 2020 (Mt) || 42

Indirect land-use change emissions- biofuels only || Average ILUC emissions 2020 [g/MJ] || 42

Total ILUC emissions 2020 [Mt] || 48

Total emissions- direct and indirect- biofuels only || Average emissions 2020 [g/MJ] || 77

Average savings 2020 [%] || 15%

Change against baseline || Indirect land-use change emissions (Mt) || 0

Total emissions (Mt) || 0

Table 5: Effectiveness analysis of option A

Both direct and indirect land-use change emissions are as described in the baseline in section 2.8, as no action is taken. Estimated indirect land-use change emissions are not reported, but even if they were to be included in the methodology, the average reported savings for biofuels compared to fossil fuels would be at 15%[92]. Similarly, with regard to the Fuel Quality Directive target, the total emission savings offered by biofuels would be at 1.1%.

5.2.2. Impacts on achieving the Renewable Energy Directive transport target

The fulfilment of the 10% renewable energy in transport target can be met, as envisaged in the NREAPs, as neither the emission reduction thresholds nor the GHG methodology are changed.

5.2.3. Economic impacts

Option A continues the existing policy framework, leaving the sustainability scheme as currently laid down in the Directives unchanged. The biofuel and related industries, as well as farmers are thus ensured a stable policy framework, which enables investor certainty. This also implies that Member States and industry can continue to follow the submitted National Renewable Action Plans[93] (NREAPs), and the EU installed biofuel production capacity can be utilised.

Security of supply is maintained as foreseen, with 10% of the energy used in the transport sector being renewable, from diversified energy sources, with about half of the total demand being met by domestic production and half by imported.

Option A has no specific implications for trade policies and trade relations. Imports of biofuels and biofuel feedstocks, particularly biodiesel, are expected to increase significantly. This option has no additional implications for technological development and innovation as both developments in greenhouse gas emissions performance and advanced biofuel production remain as planned. No additional impacts on car manufacturers with regard to the levels of biofuel blending required other than those described in the baseline.

5.2.4. Social impacts

EU rural development and employment opportunities are not affected under this option, as activities in the agricultural and industrial sectors associated with the production of biofuels in the EU are not affected and continue to develop as planned. An estimated 400 000 jobs could thus be maintained in the sector.

The expected increase in demand for biodiesel and bioethanol to 2020 will increase the pressure on global commodity markets, particularly for vegetable oil as the EU demand for biodiesel represents a more significant share of the total production. As biofuel demand is inelastic, this increased demand could impact on certain manufacturers of food, cosmetics and daily care products who rely on the same raw materials, particularly vegetable oils.

Development objectives in third countries are difficult to assess, as such impacts are dependent on local factors. However, the current framework, which is continued under option A allows for a range of crops typically grown in developing countries to be supplied to the EU, as they typically fulfil the sustainability criteria.

5.2.5. Environmental impacts

According to the models, the estimated additional cropland requirements globally amount to 1.7 Mha, mainly in regions of the Commonwealth of Independent States, Sub-Saharan Africa and Brazil, and would be taken from pasture (42%), managed forest (39%), primary forest (3%) and savannah and grassland (16%). The JRC analysis of the land cover classification used by IFPRI-MIRAGE-BioF, suggests that the largest biodiversity losses would be associated with the conversion of primary forest, and savannah and grassland, pasture land and managed forest to cropland in order of decreasing biodiversity value[94].

Although it is not possible to provide any specific information on wider environmental impacts based on the model results, adverse water, soil and air impacts would be expected from the conversion of primary and managed forests, as well as the conversion of grassland.

5.2.6. Other impacts

As emission savings offered by biofuels would not reflect indirect land-use change, biofuels would contribute less to the integrated approach for CO2 in cars[95].

5.3. Option B - Increase the minimum greenhouse gas saving threshold for biofuels

Option B follows the principles of the already existing sustainability criteria which contain thresholds for minimum greenhouse gas savings from biofuels compared to fossil fuels. To raise the threshold further would exclude certain feedstocks with higher direct emissions. The table below illustrates how increasing the threshold affects compliance for various feedstocks. As shown in table 4 in chapter 2.8, vegetable oils have high estimated indirect land-use change emissions; these are highlighted in red colour and bold letters in the table below.

|| Feedstock || Direct greenhouse gas emissions (2020) || Allowed with 50% threshold || Allowed with 55% threshold || Allowed with 60% threshold || Allowed with 65% threshold || Allowed with 70% threshold

|| || (g/MJ) || 45,4 || 40,8 || 36,3 || 31,7 || 27,2

Biodiesel || Palm oil || 51,1 || || || || ||

Soybean || 46,9 || || || || ||

Rapeseed || 40,2 || || || || ||

Sunflower || 32,4 || || || || ||

Palm oil with methane capture || 29,3 || || || || ||

2G biodiesel - non-land using || 9,3 || || || || ||

2G biodiesel - land using || 5,4 || || || || ||

Bioethanol || Wheat - Process fuel not specified || 50,3 || || || || ||

Wheat - Natural gas as process fuel in CHP plant || 33,5 || || || || ||

Corn (maize) || 32,7 || || || || ||

Sugar beet || 27,1 || || || || ||

Sugar cane || 20,2 || || || || ||

Wheat - Straw as process fuel in CHP plant || 21,6 || || || || ||

2G bioethanol - land using || 16,7 || || || || ||

2G bioethanol - non-land using || 9,0 || || || || ||

Table 6: Direct emissions are shown in the first column, the allowed direct emissions as a function of the threshold is shown in the second row (in bold). The colouring is indicating whether the feedstock named in the left column achieves the threshold indicated in first row. Grey colour indicates that the feedstock is not reaching the threshold (however, the feedstock could be in compliance by improving performance by less than 5 g/MJ), while red/dark grey colour means that the feedstock is below the threshold by more than 5 g/MJ.

5.3.1. Level of threshold

It should be noted that these figures are estimates for 2020, and represent typical values, and not default values[96]. From the table it can be observed that certain types of wheat bioethanol, palm oil biodiesel and soy bean biodiesel have difficulties achieving 50% savings. No further changes are occurring when the threshold is raised from 50% to 55%, but rapeseed[97] is likely to be excluded when the threshold reaches 60%. At 65% corn bioethanol, wheat bioethanol produced with natural gas and sunflower biodiesel are unable to achieve the threshold, where only the latter has estimated high indirect land-use change emissions.

At 70%, all vegetable oils are below the threshold of required savings, while only bioethanol from sugar cane and efficient wheat can be produced with sufficiently savings to be above the threshold. A 70% threshold thus appears to be too ambitious, if a certain variety of feedstocks for both bioethanol and biodiesel should be available, whereas 60% savings could be achieved with several feedstocks, especially if improvements and more efficient production techniques are implemented.

To increase the threshold to 60% lowers the direct emissions by almost 10 g/MJ, thus compensating for a certain amount of indirect land-use change emissions. But more importantly it is expected to exclude palm oil without methane capture, rapeseed oil and soybean oil from being used, all of which the IFPRI-MIRAGE-BioF model estimate to have large indirect land-use change impacts. To ensure a smooth transition to higher thresholds, option B entails that the required minimum savings are raised already in 2013, to 60% up from 35% today[98].

It should be noted that in accordance with the intention of the Directives to safeguard investments[99] and allow time for industry to adjust, biofuels produced at plants that were in operation by the end of 2012 would only need to comply with a threshold of 45% until the end of 2017, at which point the 60% threshold would apply also to those installations. The proposed level of threshold increase would exclude certain feedstocks, which will need to be substituted. For the purpose of the analysis of impacts certain assumptions as to how this could take place need to be made. The following section explains this in more detail. Again, it should be noted that the analysis has several shortcomings as explained in chapter 5.1.

5.3.2. Potential scenario – meeting the targets of the Directives

A range of possible scenarios for how to achieve the targets under option B, can be developed. Essentially they imply increasing the use of bioethanol, advanced biodiesel or electric vehicles. A set of theoretical and extreme scenarios exploring the use of these options are found in Annex XIV. The least unrealistic based on contributions from other technologies (electric vehicles) is set out below.

|| Bioethanol [Mtoe] || Double counted biodiesel [Mtoe] || Electricity in road [Mtoe]

Baseline || 6.7 || 1.8 || 2.1

Option B || 13.6 || 3.8 || 2.7

This would require both more (a doubling of) bioethanol blended into the vehicle fleet, and more than doubling the amount of 'double-counted' biodiesel produced (both are doubled compared to the baseline – which means twice the amount of what is estimated in the NREAPs).

The increased consumption of ethanol is a question of blending possibilities, as the share of petrol consumption in the EU is decreasing, and expected to continue to decline. It implies that the average bioethanol blends in petrol cars would be needed to increase from 11% to 22%. The JEC Analysis of scenarios for transport in the EU towards 2020[100], finds that in a scenario with an E85 grade (flexi-vehicles) introduced now, and E20 in 2017, the EU would consume 8-9 Mtoe of ethanol. If E20 is introduced in 2015 rather than in 2017 (2 years earlier), it leads to additional 0.7 Mtoe of ethanol being consumed in 2020. This indicates how challenging the consumption of 13.6 Mtoe of ethanol would be.

The availability of double-counted biodiesel is a question of supply, both in terms of availability of raw-material e.g. waste oil, but also a technical question whether enough production capacity can be cost-efficiently installed by 2020. Achieving a supply of 3.8 Mtoe of double counted biodiesel would therefore be challenging.

The scenario also needs 0.6 Mtoe of additional electricity in road transport by 2020. This would be equivalent to deploying an additional 2.3 million electric cars[101] by 2020 on top of what is foreseen in the NREAPS. The NREAPs estimate that around 2.1 Mtoe of electricity[102] is consumed in electric vehicles in 2020, which implies around 8 million electric cars. It should be noted that 2.1 Mtoe includes plug-in hybrids, as well as other road vehicles using electricity. Again, this means that this scenario is not very likely and these figures are included here for illustrative purposes only.

It is also possible that the increased threshold would lead to additional contributions from other available technologies in meeting the Fuel Quality Directive target (i.e. flaring and venting reductions). An additional 0.5 percentage points reduction through such means, would reduce the contribution illustrated in the table above by 0.7 Mtoe of electricity in road transport (back to baseline levels) or with almost 2 Mtoe of double counting biodiesel.

The shortfall could also be met by increased use of sunflower and palm oil with methane capture, as both meet the threshold at 60%. However, there are technical constraints as to how much palm oil can be used, due to high CFPP (cold filter plugging point) properties, which makes it inappropriate in colder climates. While this is true for FAME and pure vegetable oils, palm oil that has been hydro-treated into HVO (hydro-treated vegetable oil), does not give rise to issues with CFPP in colder climates, but such fuels are also expected to be in demand from the aviation sector, as it is one of the few available biofuels that jet engines can use. Having regard to the expected capacity of HVO plants and the assumed amount of palm oil with methane capture in the baseline, it is assumed that 2.3 Mtoe of palm oil with methane capture is used in the EU in 2020. Although there are no technical constraints associated with blending in more sunflower oil, its volume is assumed not to increase and is maintained at baseline levels of 1.1 Mtoe. A total of 3.4 Mtoe of oil crops derived biodiesel is therefore consumed under option B. Alternative levels of consumption of oil crops derived biodiesel is analysed in the sensitivity section.

5.3.3. Effectiveness in reducing greenhouse gas emissions

Increasing the threshold to 60% implies that overall emissions are reduced by 56 Mt compared to the baseline. 33 Mt (70%) of the estimated indirect land-use change emissions occurring in the baseline would be avoided in 2020. The biofuels used are on average saving 56% compared to fossil fuels when indirect land-use change emissions are considered. The emissions reported towards the Fuel Quality Directive target will not reflect estimated indirect land-use change emissions.

The main results are shown in the table below.

Direct emissions- biofuels || Direct emissions 2020 (g/MJ) || 22

Direct emission savings 2020 [%] || 76%

Total direct emissions 2020 (Mt) || 19

Indirect land-use change emissions – biofuels || Average ILUC emissions 2020 [g/MJ] || 18

Total ILUC emissions 2020 [Mt] || 14

Total emissions- direct and indirect- biofuels || Average emissions 2020 [g/MJ] || 40

Overall savings 2020 [%] || 56%

Change against baseline || Indirect land-use change emissions (Mt) || -33

Total emissions (Mt) || -56

Table 7: Effectiveness analysis of option B

It should be noted that if rapeseed was to improve performance sufficiently, or the deficit of rapeseed was to be filled with other oil crops that pass the increased threshold (sunflower and palm oil with methane capture), the reductions in estimated indirect land-use change emissions would be reduced accordingly. This analysed in the sensitivity section of option B.

5.3.4. Impacts on achieving the Renewable Energy Directive transport target

There is a risk that the transport target of the Renewable Energy Directive is not achieved, if industry does not manage to produce sufficient amounts of biofuels with at least 60% direct greenhouse gas savings or the technological developments needed to achieve required increased bioethanol blends and electric vehicles do not take place.

5.3.5. Economic impacts

The change in cost compared to the baseline is expected to be moderate as a range of feedstocks is still available. The increased use o