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# 52013SC0248

**COMMISSION STAFF WORKING DOCUMENT Executive Summary of the Impact Assessment Accompanying the document Proposal for a COUNCIL REGULATION on the Bio-Based Industries Joint Undertaking /\* SWD/2013/0248 final \*/**

  

COMMISSION STAFF WORKING DOCUMENT

Executive Summary of the Impact Assessment

Accompanying the document

Proposal for a
COUNCIL REGULATION

on the Bio-Based Industries Joint
Undertaking

1.           Purpose and procedures of the Impact
Assessment

This document assesses different policy
options for implementing the research and innovation (R&I) programme for
bio-based industries under Horizon 2020, the Framework Programme for R&I for
the period 2014-2020. Given the challenges these industries are facing,
establishing a Public Private Partnership (PPP) on Bio-based Industries was suggested
in the European Bioeconomy Strategy and the new Industrial Policy. It is supported
by a wide range of other policies.

In preparation of this Impact Assessment
(IA), the Commission consulted a wide range of stakeholder groups representing
industry, research communities, Member States, Regions and the general public.
This was done through events, consultation and the review of relevant publications.
A public consultation on the proposed PPP took place from 21 September to 14
December 2012. Almost 87% agreed with the statement that a PPP offers the most
effective mechanism to implement Horizon 2020 in the area of bio-based
industries.

This IA was prepared by DG RTD with the
support of DGs AGRI, BUDG, COMP, CNECT, EMPL, ENER, ENTR, ENV, ESTAT, HR, JRC,
MARKT, MOVE, SANCO, SG and the Legal Service. There were also bilateral
discussions with DG REGIO. A group of external reviewers assisted the
Commission with the data collection and analysis for the IA.

2.           Problem
definition

2.1.        Bio-based
industries as source of green growth for Europe

The European economy heavily relies on
petrol and other fossil resources for energy and products. Reducing this dependence
is paramount given the depletion of fossil resources and their impact on
climate change. It is critical that the EU meets its climate change targets for
2020 and moves towards a competitive low carbon economy in 2050.

Transport, households and industry are the
three largest users of fossil resources. Bio-based industries can contribute to
changing this by partially substituting fossil resources with renewable ones to
produce bio-based products and biofuels. By using industrial biotechnology they
can also make production processes more resource efficient and environmentally
friendly.

Bio-based industries are a cornerstone of
the bioeconomy in generating growth and jobs. Although they currently only
represent about 3% of the € 2 trillion in annual turnover and 1% of the 22
million jobs generated by the European bioeconomy today, bio-based industries
are expected to grow more rapidly and substantially than more
traditional bioeconomy sectors. Europe has the right technology and industry
base to exploit this potential.

Box 1: Bio-based industries, food security and ILUC Bio-based industries process sustainably produced renewable biological resources (e.g. agricultural and forestry residues, bio-waste) into high value-added bio-based products (e.g. chemicals, pharmaceuticals, cosmetics) or biofuels. Production usually takes place in biorefineries and often relies on bio-based processes, which use industrial biotechnology. The increasing use of renewable biological resources for industrial and energy purposes has raised concerns about the sustainable management of Europe's limited natural resources, indirect land use change (ILUC) and food security. Unlike the on-going promotion of "conventional" feedstock (food crops) elsewhere in the world, Europe is gradually shifting the feedstock base to non-edible biomass between now and 2020. These are converted in so-called "advanced" biorefineries and part of an approach based on life cycle analyses.

Biorefineries have to be close to their
sources of biomass to be sustainable and economically viable. Setting up supply
chains for biomass and networks of local and regional biorefineries will thus
create new jobs and sources of revenue for rural communities.

In view of growing
global competition, further investments in research, demonstration and
deployment of bio-based industries are needed to further strengthen Europe's competitive position. The EU's shift to "advanced"
biorefineries gives other nations the first-mover advantage, since they can
build critical mass in "conventional" biorefineries. The EU will
therefore need to leapfrog its competitors.

2.2.        Technological and
innovation challenges of bio-based industries in Europe

Four main technological and innovation challenges
curb the potential of bio-based industries in Europe, which should ideally be
addressed in a value chain approach:

·
Accessing sufficient sustainable feedstock: The climate change mitigation potential
of bio-based industries is based on the assumption that production
infrastructure will be developed in the EU and that a substantial share of the
biomass can be locally sourced. New solutions are needed to sustainably
increase available biomass (e.g. by using residues, waste). Reliable and
cost-competitive supply chains will also need to be developed.

·
Developing efficient conversion processes for
advanced biorefineries: The conversion of non-edible biomass in "advanced"
biorefineries is more difficult than for food crops in "conventional"
biorefineries, due to its heterogeneous quality and composition. New efficient
and cost-competitive processes must be developed. Smart use of biomass, e.g. cascading
production approaches, re-using or recycling products, needs to be improved.

·
Demonstrating and deploying advanced
biorefineries: To
compete with well-established (petro-)chemical industries, bio-based industries
need to bundle innovation efforts and accelerate biorefinery development by
promoting rapid up-scaling. This requires several technological breakthroughs
and cross-sectorial industrial synergies.

·
Supporting demand-side actions for the uptake
of bio-based products: R&I can support the uptake of bio-based products in consumer
markets and green procurement, e.g. by developing standards, labels and life
cycle assessments. Several demand-side actions are also supported by recent bioeconomy-related
policy initiatives.

2.3.        Underlying
problem drivers and need for public intervention

Several market failures are causing lack of
investment in R&I for bio-based industries:

·
High risk and cost of demonstration and
deployment: The
EU's focus on "advanced" biorefineries makes it difficult for
stakeholders to build critical mass and first-mover advantage based on
"conventional" biorefineries. The high costs for demonstration and
deployment activities make it hard for a single industry or company to manage
this risk independently.

·
Knowledge spill-overs: Many of the innovations required for
developing bio-based industries will be difficult to protect and exploit. As a
consequence, the private sector will allocate fewer resources to this type of
R&I activities.

·
Nascent and fragmented industrial sector: Mobilising the necessary R&I
resources is difficult for a nascent and fragmented industrial sector, such as
bio-based industries. Many industrial sectors are involved in bio-based
industries, but there are hardly any big players with large and fully dedicated
R&I budget.

·
Transaction cost: Working together in complex
multi-party R&I collaboration models implies many research interfaces and
high transactions costs for the companies involved. Many have not worked
together closely in the past or have no tradition of conducting in-house R&I.

·
Policy framework: Bio-based industries are subject to a
wide range of policies at EU, national and regional level, leading to a complex
and sometimes fragmented policy environment. Many of these policies are
favourable to bio-based industries, yet there are no firm targets or incentives.

·
Uncertainty around resource availability: Lack of reliable data on the availability of and demand for
sustainable biomass in Europe for industrial and energy purposes is hampering
solid forecasting of a realistic scope and scale for bio-based industries.

2.4.        Need for EU intervention

Member States and Regions have supported R&I for bio-based industries with
a wide range of bioeconomy initiatives. Cross-border collaborations have been
explored, but not to a sufficient extent to attain the critical mass needed to
attract more private investment, promote R&I along whole value chains,
avoid fragmentation and duplication, or improve coordination.

Horizon 2020 is the ideal framework for
enhanced EU level action in support of bio-based industries. It can facilitate
the cross-border, cross-sector, interdisciplinary R&I required to establish
the value chains for bio-based industries.

A strong EU level push will be critical to securing
long-term investments, mitigating risks and reaching critical mass needed to
bring the right partners to the table and resolve the technological and
innovation problems bio-based industries face, particularly in the areas of
demonstration and deployment. Over 100 relevant projects have been funded through
Collaborative Research under the EU Seventh Framework Programme for Research
and Technological Development (FP7), including a few large and integrated
biorefinery projects with a value chain approach. However, the impact of these
projects could have been even better if they had been part of an integrated
long-term strategy for bio-based industries and if more support had been given
to demonstration and deployment.

A PPP at EU level could provide the
strategic framework and critical mass needed to overcome the limitations bio-based
industries currently face. PPPs have been used successfully to leverage private
investment under FP7.

The fact that not only a group of companies
but also several regional initiatives and clusters have come together in the
light of a possible new EU initiative demonstrates that many actors "in
the field" endorse the need for decisive EU action. The relevance and
timeliness of such an initiative is also supported by the strong response to
the Public Consultation on a Bio-based PPP. It received 638 replies, and the
fact that 94.3% (strongly) agreed with the need for EU intervention.

3.           Objectives

Bio-based industries can significantly contribute
to achieving smart, sustainable and inclusive growth in Europe by 2020 and
making the transition towards a low-carbon economy by 2050. In particular, the broader
use of biorefineries can reduce the dependence of the European economy on
fossil resources and contribute to the EU's climate change and energy targets.

The strong growth potential of bio-based
industries could lead to significant economic growth and job creation by 2020 and
beyond, if Europe succeeds in maintaining and enhancing its competitiveness in
this area. Based on the potential impact bio-based industries could have for Europe in environmental, economic and social terms, the objectives are to:

·
Contribute to a more resource efficient and
sustainable low-carbon economy and to increasing economic growth and
employment, particularly in rural areas, by developing sustainable and
competitive bio-based industries in Europe based on advanced biorefineries that
source their biomass sustainably, and in particular to:

·
Demonstrate technologies that enable new
chemical building blocks, new materials, and new consumer products from
European biomass and which replace the need for fossil based inputs;

·
Develop business models that integrate economic
actors along the whole value chain from supply of biomass to biorefinery plants
to consumers of bio-based materials, chemicals and fuels, including through
creating new cross-sector interconnections and supporting cross-industry
clusters; and

·
Set up flagship biorefinery plants that deploy
the technologies and business models for bio-based materials, chemicals and
fuels and demonstrate cost and performance improvements to levels that are
competitive with fossil based alternatives.

4.           Policy
Options

This IA discusses three policy options for
organising R&I on bio-based industries under Horizon 2020. The option
"no EU action" has not been included in the IA, because the Horizon
2020 proposal already envisages relevant activities under the pillars
"Societal Challenges" and "Leadership in Enabling and Industrial
Technologies". The policy options are:

The "Business as Usual" (BAU)
option is based on standard Horizon 2020 instruments only. This implies
continuing the Collaborative Research model applicable under FP7, integrating
Horizon 2020 improvements (e.g. more emphasis on demonstration).

The "Contractual PPP" (c-PPP)
option is based on a contractual agreement between the European Commission and
industry and does not involve a dedicated Community body. It gives a strong
advisory role to the private partners. Standard Horizon 2020 rules apply. The
c-PPP does not allow for a large-scale multi-annual cash contribution from the
EU, nor does it permit the setting of a long-term strategic agenda.

The "Institutional PPP" (i-PPP)
option involves creating a Joint Technology Initiative (JTI), as foreseen
under Horizon 2020 when justified by the scope of the objectives pursued and
the scale of the resources required. The JTI has a dedicated structure with a
governance system of its own and provides greater scope for industry to make financial
contributions. It allows for a long term EU and industrial budget commitment and
the definition of a long-term strategic innovation and research agenda (SIRA).
It is the only option including a legally binding commitment on industry. A
newly created JTI would take on board lessons learnt from the JTIs operating
under FP7.

5.           Analysing
the impacts of the policy options

5.1.        Assessment criteria and
comparative impact analysis

A comparison of the impact of policy
options was carried out on the basis of a number of criteria defined in line with
those set for PPPs under Horizon 2020. They are based on the assumption that €
1 000 million will be allocated to R&I activities for bio-based industries
under Horizon 2020.

The results of the comparative impact
analysis and rating per criterion are summarised in the table below:

5.2.        Preferred option

As illustrated in the above table, i-PPP
offers clear benefits over c-PPP on all criteria, which in turn has a certain
advantage over BAU.

i-PPP's strong position is based on its
capacity to mobilise greater project resources due to the significant
contribution by industry. It would provide a stable framework with long-term
guarantees that is essential to mitigate risk and incite industry commitments,
not only in terms of R&I resources but also for investments in expensive
demonstration activities and infrastructure. The conditions offered by i-PPP have
motivated industry to match the EU contribution of € 1 000 million for R&I
activities and to leverage an additional indicative € 1 800 million for demonstration
and flagship biorefinery plants.

i-PPP incites much higher industry
participation rates than BAU or c-PPP. Its structure would help overcome fragmentation
by facilitating cross-sectorial and pan-European linkages along whole value
chains, which will particularly benefit SMEs. Such linkages are required to
successfully implement new technologies and resolve innovation problems. The scope
for taking technologies to high technology readiness levels is clearly greater under
i-PPP than under the other two options due to strong industry commitment. i-PPP
thus contributes much more effectively to bridging the innovation gap than BAU
or c-PPP.

i-PPP also offers a moderate advantage in
terms of efficiency of the governance structure. It will also have a positive
influence on coherence with Member State and regional programmes by involving
them in its Advisory Committee and consulting them on deployment.

Altogether, the advantages of i-PPP on the
above-mentioned criteria give it a strong advantage in terms of addressing the
technological and innovation challenges bio-based industries face and will
result in a larger expected scale of technology deployment and shorter time to
market. Since the positive environmental, economic and social impacts of
bio-based industries strongly depend on their deployment, i-PPP will most
significantly contribute to achieving the Europe 2020 objectives of smart,
sustainable and inclusive growth. Impacts include the development of new
cost-effective and efficient value chains that transform sustainably sourced
biomass into value added bio-based products and biofuels through resource
efficient and environmental processes, generating benefits for all involved
market players and consumers.

6.           Monitoring and evaluation

Progress and efficiency of the JTI under
i-PPP will be closely monitored, based on three levels of Key Performance
Indicators (KPIs) for measuring the progress of implementing the objectives
outlined under Section 3 at different points in time, as well as KPIs relating
to effectiveness, efficiency and Horizon 2020.

Good governance of the JTI will be monitored
with regard to: openness and transparency of procedures, avoidance of conflicts
of interest, and financial auditing. The results of the internal monitoring
will be published in an annual activity report.

The nature and the level of the industry
contribution will be monitor by the Commission on an annual basis, in order to
ensure that the R&I budget receives the necessary support both from the
public and private partners. If required, corrective measures will be applied. A
mid-term and an end-of-term evaluation (as customary with JTIs) will take place
as well as two additional evaluations respectively 3 and 6 years after the
completion the JTI term.

Monitoring is likely to be supported by the
activities of the Bioeconomy Observatory that is currently being set up in the
framework of the European Bioeconomy Strategy.

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