Policies to Support Biofuels in Europe : The Changing Landscape of Instruments

In the EU-27, national policies supporting biofuels seem to be continuously changing. The first reason for this wave of changes stems from efficiency concerns. In previous years—say, up to 2007—the main objective of biofuel policies was to trigger both domestic production and consumption in the member countries through measures of fiscal stimulus and incentives (Directive 2003/ 30, shown in the next section). These policies occurred when the biofuel option seemed not to face heavy obstacles; with the exception of land (and therefore output availability), the policies were aimed both at increasing domestic surface suitable for producing biofuels and at providing them with outlets for consumption. With these policies, a new specific biofuel industry came into operation, usually coming from already existing branches of the agro-industry. However, in 2006/2007, some doubts about the environmental sustainability and climatic advantages of biofuels began to spread (Crutzen, Mosier, Smith, & Winiwarter, 2007), which opened the door for the criticisms of Kutas, Lindberg, and Steenblick (2007). Kutas et al. emphasized the role of cost inefficiency; according to their evaluations, biofuel policies were too expensive for the national budgets of the member states if we take into account the scarce gains that biofuels could grant in terms of sustainability and the reduced amount of overall energy they could provide. This cost inefficiency brought about profound changes in the policies adopted by member states (discussed in the third section of this article), going from tax exemptions to mandates to blend, which had no direct cost for the national budgets. The majority of this article consists of an in-depth assessment of such measures. In 2008-2009, the European biofuel policy lost an even larger share of consensus in Europe. In my opinion, this was due mainly to the presumed responsibility of biofuels to boost world food prices; according to the well-known World Bank economist Mitchell (2008), biofuels were supposed to be responsible for 75% of the increase in food prices. Statistic assessments have only recently paved the way for an explanation, by emphasizing the role of financial speculation (Robles, Torero, & von Braun, 2009). At present it is unclear if first generation biofuels will continue for a long time to represent the major share of the supply—even in the presence of certifications that they meet the required environmental and biodiversity criteria—or if they will be supplanted as soon as possible by secondor third-generation biofuels (algae). Even before such a substitution occurs, the supply of first-generation biofuels should disappear. It is possible that, as firms differ if they operate in the firstor second-generation value chain (Lanzini & Ninni, 2009), this could cause a sort of Schumpeterian “creAugusto Ninni University of Parma and IEFE/Bocconi University, Milan, Italy Until 2008/2009, biofuels were considered among the best alternatives to oil consumption in a captive market such as transport fuels. Improvement of security of supply through partial substitution of imported oil, reduction of GHG emissions, improvement of income, and employment in the agricultural and rural sectors were quoted as the main drivers of the promotion of biofuels in Europe, as well as in the United States and Brazil. In the European Union, biofuels policy was supported mainly through Directive 2003/30. This article deals with the biofuel experience in Europe, providing a general analysis of the 2003/30 Directive. It includes an evaluation of the difficulties experienced in satisfying the requested targets, plus an assessment of the member states’ policies to support biofuels. Social and political consensus about biofuels decreased sharply when their ability to strongly decrease overall GHG emissions was questioned, and mainly when they were blamed of being responsible for the 2007-2008 food-price increase. Finally, a new Directive was approved on April 23rd, 2009, including the request for various certifications to prove the environmental sustainability of biofuels.