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JOS ANTNIO PORFRIO Universidade Aberta and CIEO Research Centre for Spatial and Organizational Dynamics, Universidade do Algarve PORTUGAL jporfirio@univ-ab.pt
Abstract: Portugal has been recognized as a case of world success in terms of renewable energies development. The
transport sector in Portugal accounts for about 42 percent of the countrys oil imports, and it is also one of the main responsible for the increase in GHG emissions. Like in many other countries (including EU countries) biofuels emerge at least in the short term as an interesting possibility to deal with both oil dependency and GHG emissions problems. In line with EUs policies, Portugal has defined ambitious biofuels blending targets, on the basis of a model of development privileging endogenous feedstock. Biofuels should have been responsible, not just for the accomplishment of environmental goals, but also for the development of agriculture, hence privileging also the economic and social development of people living in peripheral rural territories. In this paper we present a balance of what biofuels policies have been able to achieve until present times in Portugal and the EU, giving our view about how the emergence of certain market forces hindered the potential achievements of Portuguese public policies in this field, addressing its effects for rural development objectives.
1 Introduction
Energy is a crucial issue regarding the competitiveness of any economy, its potential for growth, and the environment protection. European Union (EU), both as a political and an economic territory, has long supported its existence and based its future development in a set of main values, of which we emphasize the principle of sustainable development and environmental protection. This was very clear in the position assumed by EU countries regarding the signature of the Kyoto Protocol in 1998. One of the things that the Kyoto Protocol highlights is that any future model of sustainable development for the world must be based in the following crucial pillars [1]): - The need to look for higher levels of energys efficiency; - Significant investments in renewable energies; - Investments in new technologies for coal extraction; - Universal access to energy to the worlds population. A study conducted by scientists at the Massachusetts Institute of Technology in 2009 [2] have concluded that if we continue the present levels of CO2 and other Greenhouse Gas (GHG) emissions into the atmosphere, then by the year 2100, instead of raising the earths temperature by 2.4 degrees, we will raise it by 5.2 degrees. This will have tremendous implications for our futures survivor and, among other things, this may imply the relocation of around 100 million people inland, out of coastal cities, being also responsible for interruptions in agricultural production, as well as vast struggles over water and food [3]. Anthropogenic climate change is primarily caused by the combustion of fossil fuels and poses a critical challenge to the global environment [4]. Besides important strategic subjects like countries dependency from energy or food
imports, these conclusions stress another crucial issue that arises from the Kyoto Protocol (and the subsequent Copenhagen Agreement) that is related with the urgent need to reduce the levels of GHG Emissions. The world must take urgent action to drastically reduce GHG emissions in order to reduce the risk of dramatic transformations to the planets climate and ecosystems. Along with these worries, recent peaking oil prices and awareness about its scarcity in a near future have opened the way for a search on alternative transport fuels driven EU (as well as many other countries in the world) to set up policies to promote these alternatives and develop investments in this domain. Biofuels presented, in the near future, as the best chance to help Europe fighting against its fossil fuel dependency. In this regard Directive 2003/30 defined an ambitious target of 5.75 percent for the EU biofuels policy, to be achieved by 2010. In contrast with the United States or Brazils policy on biofuels, which promoted the production of bioethanol, EU promoted more heavily the production of biodiesel, trying to profit from more advantageous endogenous conditions to produce some of the main feedstock necessary for that effect (mainly rape seed and sunflower) in spite of its dependency from important palm oil or soybean suppliers mainly from Asia (Malaysia and Indonesia) and United States. EUs biofuels policy has been adapted differently by EU Member States (MS). The Guidelines that were centrally defined have been translated into national policies, showing different impacts regarding both biofuels industry strength and rural development in each MS. Some EU countries, with more dynamic markets and entrepreneurs (like Germany, France, some Nordic countries and even Spain), biofuels industry has shown a strong vitality. However, for more peripheral countries
(like Portugal), with smaller fuel markets, and where there are dominant incumbent positions, the future of biofuels industry does not seem so bright, which reflects on the potential impact of these policies, in terms of sustainability and rural dynamics. In this paper, we will analyze, step-by-step, the main milestones of EUs biofuels policy, its adoption by Portugal, and the market forces that allied to an adverse framework for the industry have jointly defined the pathway of the present policy that, has we will see, reduced the overall sustainability impact of biofuels in a country like Portugal.
to reduce EUs GHG Emissions by 20 percent (if possible 30 percent) by 2020, compared to the 1999 levels; - An increase of 20 percent of EUs energy consumption produced from renewable sources (including biofuels) by 2020. With this target, EU proposes to reach by 2020, 31 percent of renewable energy in its total energys consumption mix; - An increase of 20 percent in energetic efficiency by 2020, compared to the forecasts for 2020. More recently, in April 2009, EU published its Renewable Energy Directive (Directive 2009/28/EC), revising its indicative biofuels targets for 2005 and 2010 (as presented in the 2003/30/EC biofuels directive), and defining new mandatory biofuels targets for 2020 of 10 percent. Moreover, the 2009 Directive included a mandatory target of 10 percent for biofuels in transports, to be achieved by each member state by 2020, on the basis of National Action Plans for Biofuels to be proposed by each MS. One of the innovations brought by the 2009 Directive was the need of biofuels certification. In order to be eligible for the defined target, biofuels must meet certain sustainability criteria defined by the Directive. This certification should apply to both EU domestic productions of biofuels as well as imported biofuels. Answering to the critics of biofuels due to the potential environmental problems that they may rise, the certification criteria concerns three main issues: GHG emissions savings from each type of biofuel (with default levels presented by the Directive in Annex V); land use change; and the respect for the mass balance approach. By promoting these policies, EU is in line with other major economic blocs or countries. The result of these policies may be analyzed from the latest figures available about the development of biofuels by MS. Presently, the figures available indicate a slow pace, lagging behind actual targets set by the MS, both for 2005 and 2010. In 2005 the share of biofuels was 1 percent and this share increased to 1.8 percent in 2006. Last estimations available for 2010 point to a level of biofuels incorporation in transport fuels of less than 4 percent. This indicates a total failure to achieve the proposed targets of 2 percent for 2005 and 5.75 percent in 2010. Also, there are signs that without policy measures directed specifically to biofuels policies, the proposed target for 2020 will not be reached, remaining the incorporation of biofuels in transport fuels just at an expected level of 6.9 percent. These figures also present another source of uncertainty related with the importance that second generation biofuels will represent in the mid-term. EUs policy on biofuels has been captive of different market forces and interests that were very keen to support different visions about the importance, the potential and the impacts of biofuels. This has made that EUs officials have shown many advances and draw backs regarding policy instruments to be used to promote biofuels industry, making market prospects very unclear and private investments diffuse. Mainly between 2004 and 2009, these advances and draw backs were responsible for the development of the biofuels industry in some particular countries that presented more -
dynamic markets and a certain dimension, which clearly contrasted with the observed pitfalls that were lived by this industry in other less important peripheral markets. Clearly, the chosen way to promote biodiesel instead of bioethanol appears as a crucial point of the EU strategy in this domain, having limited the development of biofuels industry in some countries, which is something that must be analyzed jointly with EUs position (in part levied in the 2009 Directive) to promote endogenous production of biofuels. One of the visible consequences today is the share of 80 percent presented by biodiesel in total EUs biofuels production, against the observed 20 percent in bioethanol. Finally one should refer the courage shown in the 2009 Directive to answer to the quest of biofuels sustainability, by presenting the sustainability criteria requested by EU to consider the incorporation of biofuels for the proposed 2020 targets. Clearly, EU has done its job in this domain, relegating afterwards to the member states and their governments, the complimentary capacity to create, develop and sustain the private investments in the biofuels industry and letting to the domestic markets forces the task of promoting (or hindering) the investments in this industry. Once again it seems that the most dynamic countries and markets have shown the capacity to develop their industries, and without further help, the less important peripheral markets (like Portugal) have presented difficulties in doing it.
percent of all Portugals oil imports, being at the same time the main responsible for the countrys GHG emissions. Moreover, about 99 percent of the final energy consumption of the transport sector is from petroleumbased products. Portugal transposed the EU biofuels 2003 directive in January 2006 (through the decree-law 62/2006 of March 21st), having initiated a serious of legislative initiatives in order to fulfill its goals regarding biofuels incorporation, the replacement of oil imports, and the announced GHG emissions reductions. Later, in 2007, the projected new target of 10 percent for biofuels in 2010 representing the replacement of more than 300 million liters of fuel anticipated EUs objective by 10 years. Biofuels incentives, as they were conceived based on a partial tax on oil products exemption (ISP Imposto sobre Produtos Petrolferos) should have promoted national agriculture once this exemption would only apply to biofuels produced from endogenous agricultural crops, wastes or residues. Given the countrys natural conditions for agriculture, there are limits to the domestic agricultural productions capacity to contribute biofuels production if the pathway is through the biodiesel development. Portuguese climate is not proper to produce rape seed like in some other northern European countries or even Spain. Also, there are clearly constrains regarding wheat productivity which is making Portugal very dependent on food imports. Contrarily, Portugal seems to have good conditions to produce corn, which could have been used to produce bioethanol. However that have meaning the follow up of an US, instead of a EUs model of biofuels development, which was something not considered by Portuguese official at that time. This is valid, even considering the countrys dependence on cereals and other food imports. The development of an endogenous character of the biofuels policy represented a crucial opportunity to create a drawback trend in the current rural migration and agricultural land abandon. Moreover, biofuels policy, if duly applied, could have contributed to increase farmers income and simultaneously diminishing their risks once activities are based in fixed term contracts between farmers and the industry thus creating new opportunities for a Portuguese decadent agriculture These effects could have been seen in the short term, between 1 to 5 years, once the development of biofuels production technology (and even concept) towards the second or third generation biofuels will probably make out of fashion these types of feedstock for biofuels production. However, such a policy could have contributed to retain farmers in their agricultural lands and their knowhow in the production of important feedstock, which could be crucial, in a near future, to assure food supplies and security to Portugal and EU as a whole. Notwithstanding, the followed pathway of aligning Portuguese biofuels policy with that followed by major northern European countries, thus relegating bioethanol for a second plan and privileging biodiesel, seem to have limited the positive effects that could have been expected from these policies.
allocating them to each biofuels producer, between 2007 and 2010. Once at the beginning of this period there was not any investments in bioethanol refineries in spite of the several manifestations of interest that were seen bioethanol remained out of these regulations. Moreover, the incumbent petrol industry, dominated by just one company that has almost 90 percent of the oil market in Portugal making this market a kind of oligopoly soon started to talk about the need for market deregulation, having neglected any bioethanol chance to succeed given the market dimension (and also the potential of its partnership with Brazil in this domain). Moreover, this incumbent company soon declared its intention to make a huge investment in a new technology for biodiesel production that, according to its declarations, would place out of business every biodiesel producer already in the market. This also has created a climate of uncertainty in the biodiesel industries already in operation and, at the same time, removed some announced intentions of several private investors to invest in biodiesel refineries, once they all know that the final destiny of their biodiesel product would be this petrol company. Once the company announced its potential to supply to itself the necessary biodiesel to fulfill the mandatory targets defined by the Portuguese government in this domain, its monopsony position questioned clearly the potential of any other biodiesel supplier and so, the viability of their businesses. This was reinforced by the fact that without a distribution channel for their products, and being obliged to blend their biodiesel with conventional diesel, biodiesel industry was totally dependent from the petrol industry, moreover given the fact that there are no infrastructures available for blending, other than those owned by the petrol industry. Finally, and in spite of everybody knowing that any industrial investment should be analyzed in the long term, one must not forget the economic conjuncture that was lived between 2007 and 2009. Biofuels business potential is always limited by major opposite movements on prices of two important world commodities, i.e. oil and biofuels/food feedstock/ crops, and marginally, also by the exchange rates movements between USD and the Euro. The ideal scenario for biofuels industry in Europe is low price for food, and higher oil prices, with an exchange rate that favors the euro against the USD. During 2006 and 2007, by the time where investment decisions in the biofuels industry should have been made, we observed a general tendency for high food prices and low oil prices, the worst scenario possible for the set up of any biofuels project. Moreover, the explanation given by different officials and organizations for the higher food prices supported that they were the result of the market pressures on food, derived from the increased demand of food crops by the worlds growing biofuels industry, in spite of the official figures clearly demonstrate that feedstock is only responsible for about 30 percent of food prices for consumers.
The installed framework have created a shortage of finance possibilities, which have difficult both the financing of new projects and even the maintenance of the projects already in place, facing difficulties due to the adverse conjuncture. This situation was advantageous for the Portuguese critics about biofuels, as well as for the industry incumbents and the petrol industry, having limited almost all the new projected investments in the biodiesel industry, and forced the abandon of the projected bioethanol investors. The bioethanol industry in Portugal was also suffering these problems, aggravated by two other major disadvantages: - the reduced dimension of the gasoline market, which counted with less than one third of total transport fuels market and served as a justification to consider a maximum of one industrial investment; - the fact that there was not any industrial unit already operating like it happened in the biodiesel industry, thus not having yet the adequate pressure on politicians to develop this business. The result of this descriptions is that, nowadays Portugal can count on less than half a dozen biodiesel industries (which we can say is satisfactory for the diesel markets dimension and the mandatory blending quotas) but none bioethanol industry, thus hindering the rural development potential from biofuels policy. This situation was finally institutionalized in 2009 by the Decree-Law 49/2009 of 26 February that imposed a mandatory quota of 6 percent for 2009 and 10 percent for 2010 for the incorporation of biofuels in transport fuels, just considering biodiesel and subject to any amendments that would possibly arise from the revision of EN 590 standard for road diesel. It is also important to refer that due to several problems, the announced investment in the new generation of biodiesel by the major petrol company operating in Portugal has never occurred. The present five major industries that manage to survive in the biodiesel production, with the exception of one that has shown the ability to create its own distribution channels, are somehow obliged to sell all their production to the incumbent petrol company that is the only one that has the capacity to blend it and sell it to the public, and even to other petrol companies and gas stations operating in Portugal. Tax exemption of ISP finished at the end of 2010 and a new system of prices calculation is being implemented to reflect differences in gasoline and diesel prices originated by biofuels differentials, in the selling price to the public. Also, a system for monitoring biofuels compliance with the law was implemented and a certification system is being created in order to fulfill EUs principles of sustainability. Since almost all biofuels feedstock are being imported, the desired rural development effects from the biofuels policy have not been observed in Portugal like they occurred in many other European countries that were able to support their industry development without the intervention of the adverse market forces that we described here.
Ironically, present market conditions (high oil prices and low food/feedstock prices) are favorable to the bioethanol industry, which is booming in EU, but Portugal cannot profit from this situation once there are no investments in this domain.
significant consequences to existent habitats, and that can be explored to harvest biofuels feedstock. For some countries like Portugal, where there exists a clear deficit on the Food Trade Balance, biofuels policy and its effective achievements may be considered a lost opportunity to stick farmers to their lands, thus fighting the abandon of agriculture and subsequent rural migration, and to return to the production of some important food productions (like corn or wheat) that, when the second generation of biofuels arrive, and the biofuels business fundamentals change, could well be deviated for food production purposes. Finally, regarding sustainability issues of biofuels production and use, we consider that the environmental sustainability criteria defined by EU on its 2009 Directive, being based on clear and objective methods of calculation, answers any doubts that may persist in this domain from the more skeptic ones. In summary, in spite of the goodwill intrinsic to the principles of biofuel policies in sustainability matters, for Portugal one can only talk about weak policy achievements in this domain, since with the present policies taken place, just one of the three sustainability pillars environmental, economic and social may be considered as completely achieved under the present conditions, and that is environment.
A report of an Executive Session on the Grand Challenges of Sustainable Transition, San Servolo Island, Venice, Italy, May 19-20, 2008 (Sustainability Science Program, Center for International Development, Harvard University, Cambridge, Massachussets, 02138 USA [9] Chu, Steven and Goldemberg, Jose (Coords.), Lighting the Way Toward a Sustainable Energy Future , InterAcademy Council, October 2007
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