Wednesday, April 30, 2008

EU biofuels developments

Oil hits fresh high as biofuels rethink looms

By Carola Hoyos in Rome and Ed Crooks and Javier Blas in London

Published: April 22 2008 23:52 | Last updated: April 22 2008 23:52

Expectations rose on Tuesday that soaring food prices will provoke a
rethink of support for biofuels in Europe and the US, as the price of
oil hit a new high of almost $120 a barrel.

Biofuels produced from crops such as corn and soya provide a small but
fast-growing share of road-fuel supplies, and had been expected to
make an important contribution to meeting growing demand.
EU eyes stricter standards for biofuel imports - Apr-27
Consensus on crops turns into acrimony - Apr-26
UN says oil rise hits food prices harder - Apr-26
Environmental benefits not always so great - Apr-26
Alarm and irritation from carmakers - Apr-26
IEA warns against retreat on biofuels - Apr-25

But Gordon Brown, the UK prime minister, said on Tuesday the country
could push for a change in a European Union target to increase the
proportion of biofuel to 10 per cent of road fuels by 2020.

Malcolm Wicks, the UK energy minister, went further, telling the
Financial Times that the targets should be reviewed because of
mounting concern that they are contributing to food shortages.

The remarks will reinforce perceptions in the oil market that
government support for biofuels, without which US and European
production is unlikely to be commercially viable, is at risk.

Kevin Norrish of Barclays Capital said that two years ago the
assumption was biofuels would provide a significant share of the fuel
supply – enough to make up new US demand for petrol.

"The realisation now is that this may not happen, because of the
impact on food prices," he said.

Biofuels still have strong political support in many countries. Angela
Merkel, Germany's chancellor, said last week: "Those rising global
food prices have nothing to do [with] biofuels."

But Rob Bailey of Oxfam said: "We want the government to stop adding
fuel to the fire by subsidising the diversion of land to biofuels

Agriculture diplomats are concerned that governments are focusing on
biofuels as the main reason for rising food prices. They argue that
the use of agricultural land and crops for fuel is only part of a mix
of problems including higher demand in Asia, climate change, declining
growth in farming productivity and water scarcity.

The European Commission has been defending its 10 per cent target.
Asked by reporters on Monday whether the EU was reconsidering its
position on the biofuels target, a spokesman said: "The answer is very
simple. No."

However, Mr Brown said in a statement on Tuesday, ahead of a meeting
on food prices with industry leaders and development experts, that if
a UK government review of the impact of biofuels now under way "shows
that we need to change our approach, we will also push for change in
EU biofuels targets".

The review was launched in February and is due to deliver initial
conclusions next month, with a full report by the end of June.

Speaking in Rome, Mr Wicks voiced the most open criticism yet from a
British minister of European and US policies to encourage the use of

"It would be ridiculous if we fill up our cars with 5-10 per cent of
biofuels if the consequences are that somewhere else in the world
people are not being fed," he said.

"We need to have a second look [at the EU's biofuels target]. I think we will."

Environmental and social groups have intensified their campaigns
against biofuels as food prices have risen, arguing that they are
diverting production away from food and animal feed.

Until now the government's policy has been to support the increased
use of biofuels.

The renewable transport fuel obligation, compelling suppliers to
provide 2.5 per cent of their sales as biofuel, took effect last week.
The proportion rises to 5 per cent in 2010.

Copyright The Financial Times Limited 2008

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