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Commission's investment expectations for advanced biofuels will not be met, investor confidence survey suggests

The European Commission’s proposed binding targets for advanced biofuels in the Renewable Energy Directive II (RED II) cannot be met because of a lack of private investment in the sector. The Commission suggests that investors will spend EUR 900 million per annum on advanced biofuels from 2021, but a survey of investor confidence commissioned by Verband der Deutschen Biokraftstoffindustrie (VDB) reveals that none of the respondents has committed any funds to developing advanced renewable fuels.

“The EU must use all available alternatives to fossil fuels to reduce greenhouse gas emissions in the transport sector and fulfil its obligations under the Paris climate agreement. Finishing conventional biofuels would significantly reduce the EU’s credibility and reliability in the field of climate, industry and agricultural policy,” said Elmar Baumann, Managing Director of VDB, here seen addressing delegates at the recent Argus Biofuels conference held in London, UK.

In its Renewable Energy Directive II (RED II) proposal, the European Commission suggests that investors will spend EUR 900 million per annum on advanced biofuels from 2021. However, a recent survey of investor confidence by the consulting division of global energy and commodity price reporting agency Argus on behalf of Verband der Deutschen Biokraftstoffindustrie – VDB (German Biofuel Industry Association) reveals that none of the 26 private-sector stakeholders that responded has committed any funds to developing advanced renewable fuels.

According to a statement, VDB commissioned the independent survey from Argus to “understand whether the biofuels industry expects RED II to provide sufficient incentive to spur investment in advanced biofuels and what effect the directive’s reduction in support for conventional biofuels will have on investor confidence”.

Argus interviewed 26 market participants about their attitudes towards engagement in advanced renewable fuels and their expectations for investor confidence following the reduction in support for conventional biofuels. Survey respondents came from a diverse background, ranging from the chemical industry to traders and brokers.

The conclusion is stark – the European Commission’s proposed binding obligations for advanced biofuels in the Renewable Energy Directive II (RED II) cannot be met because of a lack of private investment in the sector. More than half of the respondents to the survey say they will not invest in renewable fuels in the future if the Commission’s plans are transposed into law.

Even with binding targets for renewable fuels, respondents indicated that they would be hesitant to invest because of the issues surrounding legislative support and uncertainty around technology. 81 percent of the respondents indicated that the reduction in support for conventional biofuels would reduce investor confidence in advanced renewable fuels, said Tom Searle, Consulting Manager at Argus and author of the report.

Considerable change needed

The European Parliament and the European Council will discuss and vote on the Commission’s proposal in the coming months. However, considerable changes to the Commission’s RED II proposal would have to be made to incentivize sufficient investment to meet the advanced biofuel targets, according to 69 percent of survey respondents.

For investors, conventional and advanced biofuels form a tandem — one does not exist without the other. Therefore we need EU-wide binding targets for conventional biofuels until 2030, otherwise, investment in advanced biofuels and other renewables in transport will fail to appear. Conventional biofuels are the foundation on which advanced biodiesel and bioethanol are based. Parliament and the Council must modify the commission’s flawed proposal and maintain the targets for conventional biofuels. Destroying the vast investments in conventional biofuels made in the EU will not attract money for advanced renewable fuels, said Elmar Baumann, Managing Director of VDB.

Conventional biofuels are currently the only renewable energy source available in sufficient quantities.

The EU must use all available alternatives to fossil fuels to reduce greenhouse gas emissions in the transport sector and fulfil its obligations under the Paris climate agreement. Finishing conventional biofuels would significantly reduce the EU’s credibility and reliability in the field of climate, industry and agricultural policy. We encourage Parliament and the Council to live up to their responsibility and agree to the necessary framework that fosters advanced biofuels while keeping the basis of conventional biofuels in the market, Baumann said.

Long-term legal framework that includes conventional biofuels

The European legislative framework for biofuels has changed several times in the past decade. The target for energy consumption from renewables in the transport sector was set at 10 percent in 2009 — of which biofuels made up a large amount. The EU has capped the share of conventional biofuels at 7 percent since 2014.

Survey respondents called for a long-term legal framework lasting 15-20 years to be introduced to regain investors’ trust. And the share of conventional biofuels used to meet renewable energy targets should be increased, or at least not reduced, survey participants said.

The Commission’s proposal sets a binding 1.5 percent target for advanced renewable fuels in 2021, which rises to 6.8 percent in 2030. The Commission also wants to end the EU-wide support for conventional biodiesel and bioethanol in 2021.

This would destroy a whole industry that developed because of the political support of the first Renewable Energy Directive (RED), Baumann said.

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