Abstract
Executive Summary
The presented reform proposal aims at creating a level playing field for biobased chemicals and materials with bioenergy and biofuels in Europe. It is fundamentally different from other reforms of the Directive being currently discussed because it opens the perspective to not only look at energy, but also at biobased materials. The proposal is based on the insights that the support system for bioenergy and biofuels created by the Renewable Energy Directive 1 (RED) and the corresponding national legislations is one of the main reasons hindering the biobased material sector from developing—and therefore the whole biobased economy.
It is time to understand that the RED stems from a time when biomass was available in abundance and it made sense to create the framework, but that today biomass is a highly valuable raw material that should be allocated in the most efficient way possible. At the moment, the legislation causes serious market distortions for biobased feedstocks that have been reported by a multitude of companies. Unfavorable framework conditions combined with high biomass prices and uncertain biomass supplies deter investors from putting money into biobased chemistry and materials.
“Whereas world capacity for biobased chemicals and materials is rapidly growing, Europe clearly lags behind. Lux Research, a Boston based company, expects a doubling of global biobased capacity in 2017 to 13.2 Mton. But Europe's share will drop from 37% in 2005 to 14% in 2017.” 2
This Industry Report includes excerpts from a report prepared by nova-Institute for Ecology and Innovation, May 2014. The full report is available at
Furthermore, several problems with the current framework have become apparent over the last few years, as for example the fact that some Member States are not on track with meeting their quotas or that feedstock bottlenecks have appeared due to the increased and unbalanced demand for biomass.
This reform proposal aims to offer solutions to all these issues, while improving the generation of value added, employment, innovation, and investment in Europe. All of these criteria can be better fulfilled by industrial material use than by energy use (of the same amount) of biomass. The strengthening of the biobased material sector will contribute to the desired industrial renaissance recently communicated by the European Commission, while still reducing greenhouse gas emissions and contributing to a strong climate policy of the European Union (EU). Furthermore, it aims at lessening the dependence on public subsidies while still using, preserving and expanding the existing structures in place for bioenergy and biofuels.
The revolutionary proposal calls for an opening of the support system to also make biobased chemicals and materials accountable for the renewables quota of each Member State. The basic idea is to transform the RED into a REMD—a “Renewable Energy and Materials Directive.” It does not intend to establish a new quota for the chemical industry. Instead, it proposes that the material use of a biobased building block such as bioethanol or biomethane should be accounted for in the renewables quota the same way as it counts for the energy use of the same building block, e.g., fuel. Other building blocks, such as succinic acid, lactic acid, etc., could be accounted for based on a conversion into bioethanol equivalents according to their calorific value. Reduction of greenhouse gas emissions could also be the basis for such a conversion.
Six more evolutionary proposals complement this comprehensive idea of a REMD. They focus especially on resource efficiency by restricting bioenergy's share of the RED quotas, strengthening solar and wind power within the European renewables framework, and by including more CO2-based fuels in the quota. It is proposed to abolish multiple counting within the quota, except for raw materials stemming from cascading or recycling processes. Furthermore, in the future, representatives of the material sector should also be heard for any reform concerning energy won from biomass.
Finally, the reform paper addresses the current debate about sustainability certifications for biomass used for any purpose. It points out that sustainability certifications for the energy sector were only implemented hand in hand with considerable incentives. This aspect is often forgotten in the discussion. The paper proposes installing the same sustainability criteria for biomass used for materials that are required for the use of energy, if the same incentives are applied.
Introduction
Why should there be another reform paper concerning the RED? Because it is fundamentally different from others and proposes a true development of the RED towards a REMD, which would mean opening the Directive for biobased chemicals and materials.
The bioenergy and biofuels sector has gotten into troubled waters; investments are stagnating. The effects on global food prices, pressure on ecosystems, and direct as well as indirect land use changes (LUC and iLUC) are more in the focus of public debate than the previous growth, future opportunities, and investments. This is partly due to the fact that all of the sector (with some exceptions in the wood heating market) is strongly dependent on incentives. If those are reduced, many companies might face bankruptcy and new investments will stop.
At the same time, the “true” biobased economy does not pick up speed. This is caused, among other things, by the framework conditions created by the RED, which systematically prevent new developments and investments in the higher value added applications such as biobased chemicals and materials by only supporting energy use of biomass. The EU is one of the last regions worldwide that has not implemented a level playing field—in the US, biobased chemicals are eligible for the same support programs as biofuels under the Farm Bill since February 2014.
The RED was conceptualized at a time when biomass was available in abundance. Today it is a challenge to generate the most value added and the highest reductions of GHG emissions with a limited amount of biomass. The goal should be to increase resource efficiency and cascading use towards a circular economy. Today's RED is mostly blocking such developments; only a comprehensive reform can change this.
This means also facing a second challenge: The existing infrastructures of bioenergy and biofuels should be used, preserved, and expanded. By promoting new material applications of biomass, more value added can be created and new investments attracted. This paper is a contribution to reach these goals. It has been created over the course of two years in continuous exchange with leading experts of Europe's biobased economy.
The Renewable Energy Directive and Its Goals
The Renewable Energy Directive created the very first EU legal framework for the use of renewable energy in the three areas of electricity, heating/cooling, and transport. The goal is to meet 20% of the EU's overall energy demand (gross final energy consumption) through renewable energy by 2020, along with a minimum of 10% of transport demand. It also defines a specific level of its final energy demand that each individual state must cover through renewables by 2020. These quotas are binding for Member States and the EU is free to impose sanctions on any state that does not meet these objectives. These regulations were created before a backdrop of both increasing awareness of a pressing need for worldwide climate protection as well as steeply increasing prices of fossil energy, which made the dependence of Europe on energy exporting countries clearer than ever.
The RED held solutions for both these issues: The obligatory reductions of GHG emissions from the energy sector were the EU's contribution to the reduction goals set forth in the Kyoto Protocol from 1997, which came into effect in 2005. With its 20% goal, the EU's plans exceed the reduction targets of the Kyoto Protocol. At the same time, the alternative ways of locally and regionally producing energy that were heavily incentivized through the RED and its subsequent national legislations seemed to offer some degree of independence from energy imports in a time when “oil peak” was frequently talked of and the “fracking boom” had not yet started. These circumstances helped to find a broad consensus for necessary action.
Even a third purpose was served with the energy support programs: Since the 1990s, new market opportunities for agricultural products had been searched for in order to support the struggling agriculture, which produced too much and faced a continuing decline of prices and employment. Energy served as a very attractive outlet for these biogenic materials. Thus, the RED was able to generate massive effects with relatively few mechanisms and within a relatively small amount of time: In 2012, energy from renewable sources was estimated to have contributed 14.1% of gross final energy consumption in the EU, compared with 8.3% in 2004, the first year for which these data are available.
The successfully implemented bioenergy and biofuel industry used the incentives very well, creating an amazing dynamic in technology development, investment and logistics and last but not least, a reduction of CO2 emissions.
Time for a Reform
As shown above, the original intentions of creating the RED cover a broad range of important objectives and the directive has indeed led to significant, positive results in the change of the European energy landscape. However, several points of criticism make it clear that there is a necessity to introduce comprehensive reforms to the legislative framework, and these are detailed below.
Most Member States are not On Track to Meet the Targets Set Out in the Red: Reduced And Non-Binding Targets For 2030?
A recent report has shown that most Member States are lagging behind on fulfilling the RED renewables quotas under the current conditions. 3 This endangers the ambitious climate goals of the EU and can have negative impacts on its credibility in the struggle to keep the 2°C goal of the Kyoto Protocol. Several Member States question the planned increase of the renewables quota by 2030 and would prefer to avoid technology obligations. Accordingly, the European Commission introduced a proposal in early 2014 to increase the GHG reduction from 20% (in 2020) to 40% in 2030 (baseline 1990), but decreased the target for the share of renewables in the total energy supply mix to 27% in 2030 (instead of the formerly discussed 30%) and renounced any binding quota for the Member States. 4 The European Parliament continues to insist on binding quotas on renewables for the Member States. This has given ground for ongoing heated debates. This paper proposes another solution that could make it possible to increase binding targets as planned but to fulfill them in more ways than are possible today.
Bioenergy and Biofuels are Expected to Make Up 60% of the Overall Quota and Almost 90% of the Transport Quota
That is the result of a study by the Joint Research Centre of the European Commission from the end of 2011. 5 Although bioenergy used to serve as an appropriate outlet for the overproduction of agricultural goods in the 1990s and can be a sustainable energy source in local or regional contexts, this overwhelming share in the overall renewable quota was probably not planned when the Directive was devised and leads to several further negative consequences. Experts estimate that the EU's demand for wood pellets will strongly increase to 29 million tonnes by 2020, from 8 million tonnes in 2010. Two-thirds of the pellets will be imported from abroad. 6
Feedstock Bottlenecks
The logistics needed to fulfill the RED quotas with biomass are quite elaborate and show more and more defects. The most staggering effect is the enormous increases in imports of wood pellets into the EU, which is environmentally questionable and is also economic madness. It is already clear that many countries will only be able to fulfill their quotas, if at all, by importing great amounts of wood pellets, biodiesel, and bioethanol from North and South America as well as from Asia. The direct and indirect land use changes incurred by these mechanisms have been widely discussed in the EU, but no solution has been found so far.
Furthermore, the development of second generation lignocellulosic fuels is proving to be extremely difficult and expensive, with several big players leaving the sector over the last few years after the projects became more and more expensive and showed less and less promise of success. Other second-generation raw materials such as side streams have very limited availability and would need to be transported quite far, too, if they were to be utilized on a large scale.
Market Distortions Between Energy and Other Uses of Biomass
There has been widespread criticism of the biofuels and bioenergy policy of the EU creating food shortages and exacerbating existing food crises. But another sector is also massively affected by this framework: the industrial material use of biomass. Due to the massive support policy for bioenergy and biofuels, the allocation of biomass is distorted. Multiple counting for certain feedstocks makes this problem even more pressing, even though a recent study has shown that multiple counting has not led to significant technological improvement. 7 The non-level playing field between energy and material use of biomass creates negative impacts, including hindering resource efficiency, innovation, employment, and investment in Europe.
Reforming the RED is hardly a new idea since the Directive has been under heavy and controversial discussion for a while now. The iLUC proposal from 2012 constituted one big step in the direction of a reform, but the debate is ongoing and will not lead to a substantial change in the framework. 8 Despite all of the ongoing discussion, this paper presents some aspects that have been completely absent from the political debate about the RED so far. It presents approaches to solutions for most of the problems previously mentioned above, while following a number of criteria that aim at ensuring that the reform proposal is driven by real, rational and scientifically sound objectives.
Criteria for a Redesign of the RED
The objectives guiding a political reform proposal should be clear in order to make the motivations behind said proposal transparent. When developing the ideas behind this paper, the following overarching policy goals for Europe were taken into consideration: • Guaranteed food security • Increased climate protection • Increased resource efficiency–circular economy and cascading use • Increased value added creation • Increased employment generation • Strengthened innovation • More investment and production in Europe
We propose these criteria as the basis of any discussion about the reform since they are widely accepted by mainstream political debate and are defined by several official EU policy documents. Creating incentives, policy should prefer those biomass pathways that better reach these objectives. All of these criteria can be better fulfilled by industrial material use than by energy use (of the same amount) of biomass.
Current Effects of the RED on the Industrial Material Use of Biomass
A comprehensive analysis of hurdles carried out by nova-Institute shows that the RED (associated with the FQD [Fuel Quality Directive 9870] in the transport sector) is one of the main causes of the longstanding and systematic discrimination between material and energy uses. 9 The RED hinders the development of material use by providing comprehensive support to energetic uses of biomass that is not balanced by comparable incentives for the material use. The impact is unfair competition for biomass, pressure on established biomass uses in the material sector, and significant potentials for innovation, value creation, and climate protection that remain untapped. Unfavorable framework conditions combined with high biomass prices and uncertain biomass supplies deter investors from putting money into biobased chemistry and materials—even though these would produce higher value at greater resource efficiency. This may also constrain the development and operation of integrated biorefineries. In order to realize the potential of biobased chemicals and materials, to establish a level playing field there is a need for a new political framework.
Reform Proposals
In different recent publications of the European Commission and the European Parliament, they showed that they are aware of the existing market distortion and the need for a reform of the existing policy framework. 10 A larger share of industrial material use of biomass gets tailwind from one of the latest main targets of the European Commission, which is that a 20% share of GDP should be generated by industrial production (manufacturing) in the EU by 2020, compared to 15.1% in 2013. 8 An increasing use of biomass in biobased chemicals and materials would be very well in line with strengthening the industrial production in the European Union.
In a report on the Commission's Bioeconomy Strategy, the European Parliament also stressed the need to design bioeconomy policies “in order to ensure a cascading use of biomass” and therefore to develop “a legal instrument that will pave the way for a more efficient and sustainable use of this precious resource.” 11
However, the political and practical implementation of these insights is still lagging behind in Brussels and the Member States. While many Asian countries and the US have started to create a level playing field for biobased chemicals and materials, Europe has nothing to show for in terms of comprehensive reforms or strong instruments. Now is exactly the right time to change the framework and attract new investments to Europe. The capacity and investment crisis in parts of the bioenergy and biofuels sector could be overcome with reform proposals. With the right incentives, a transformation of existing structures of bioenergy and biofuels production towards the industrial material use of biomass could be initiated now, leading to greater value added and a much lower subsidy level. This is a challenge and a great opportunity at the same time!
A Genuine Level Playing Field for Material and Energy uses Involving An Expansion of the Red into a REMD
At the moment, the quotas set out in the RED can only be fulfilled by energy and fuels since it was developed for these products. Would it not be possible to open this for other applications? The basic idea of our proposal is to include industrial material use of biomass, such as biobased chemicals or materials, in the RED overall quotas and also in the fuel quota. This would make producing biobased materials an additional option of fulfilling the RED quotas; it is not meant as a replacement. From a technical and legal point of view, it is relatively simple to open up the RED quota in this way.
This would involve recasting the RED as a Renewable Energy and Materials Directive and would live up to the RED's initial goal of reducing GHG emissions. Material uses of biomass cut greenhouse emissions by a comparable amount to biofuels, at least per tonnes of biomass respectively per hectare, each compared to its petrochemical counterpart.
But what would this inclusion actually look like? For example, the RED quota should count chemicals and polymers made from ethanol (via ethylene) produced from certified sustainable biomass in the same way as it counts bioethanol as a fuel. Of course the sustainability of the biomass used for the bioethanol has to be certified such as in the case of biofuels, and also the requested CO2 reduction has to be confirmed. (The percentage GHG targets in force for biofuels cannot be easily applied to long material production chains. If material and energy use are to be compared, the respective GHG reductions must be converted into absolute values per unit of biomass or per hectare.)
Just as biobased ethanol, methane also is a fuel as well as a biobased building block for chemicals and polymers. In those cases it is easy to open the quota 1:1 for material use. All other biobased chemicals such as succinic or lactic acids or many others can be converted into bioethanol (or biomethane) equivalents on the basis of their calorific value and could then be counted for the quota in the same way as bioethanol (biomethane). That would be the simplest and most pragmatic means of including them—but on the other hand not very fair because the economic value of a chemical building block can strongly differ from its energy content. It would be preferable from a climate policy perspective to calculate values on the basis of the GHG emissions that are prevented (per tonnes of biomass or cultivation area), but this would surely be less admissible in law than calculating on the basis of calorific value.
Of course, correlating calculation systems would also have to be developed for other industrial material uses of biomass in order to include them in this system. However, attention must be paid to ensuring that there is no double counting over the long, complex material value chains, from e.g., building block/monomer via polymer to plastic.
Expanding the RED into a REMD would give Member States the additional option to fulfill their target quotas with biobased chemicals and materials and create the necessary conditions for their chemical and material industries. This could be of great interest to some Member States that wish to implement appropriate measures to strengthen industrial innovation and investment in their country, while also fulfilling their RED quotas. It is also an interesting option in order to solve all the issues explained above.
The proposal addresses one problem especially: it would make it even possible to define higher shares of renewables that are obligatory for the Member States to reach. This decision is currently highly controversial, and this proposal presents a solution: by opening the quota for non-energy uses of biomass, Member States would gain additional options for reaching their renewable shares. Instead of only energy, they could fulfill their quotas with chemicals and materials too.
Six Evolutionary Proposals
In addition to the comprehensive reform proposal presented above, we suggest six measures related to the RED that have the potential to contribute to a level playing field. They would reduce competition for land, market distortion, and biomass misallocation, along with promoting improved land-use efficiency. Some of these measures can be implemented alongside with the comprehensive REMD idea, but some of them could even be implemented if the comprehensive reform does not take place.
Listen to Representatives of the Biobased Materials Sector
Whenever the RED is revised, it should not just be the bioenergy and biofuel associations who have a say. Input should also be more widely sought from associations and representatives involved in industrial material use of biomass in order to avoid the new Directives having negative side effects, especially additional market distortions that have an impact on material use.
Restrict Bioenergy's Share of the Red Quotas
Bioenergy and biofuels are expected to make up roughly 60% of the overall quota and about 90% of the transport quota by 2020. 5 If one were to restrict the bioenergy share of the overall quota and the transport quota to 40–50% and 80%, respectively, for example, a significant amount of pressure would be removed from biomass. The authors suggest that this kind of regulation would be more useful than limiting the share of first-generation biofuels. The quotas would then have to be filled with a larger amount of solar and wind power and other renewable sources. Limitations on the biofuel share of the transport sector would need to be lower for the time being, since alternatives such as electric cars and CO2-based fuels are not yet sufficiently widely available on the market. When they are, then the biomass share of the quota should be reined in accordingly. However, earlier restrictions on the biomass share could help electric cars and CO2 to break through more quickly.
Increase Land-Use Efficiency Through Higher Shares of Solar and Wind Energy
Solar and wind power harness far greater amounts of energy per unit area or, put differently, use far less area to utilize the same amount of energy than biomass. This is true for heat, electricity and transport. Solar and wind energy should therefore receive a higher share in fulfilling the total quota. This would make it attractive to develop land-efficient solar and wind energy while (meeting the same quotas) reducing the pressure on agricultural land. Special incentives should also be created for electricity from energy storage facilities, as these are important for the further development of solar and wind energy and are capable of gradually replacing increasingly scarce biomass for storage and base load operation. Also CO2-based fuels have huge storage potential (power to gas).
Rethink Differential Counting to Optimize Resource Efficiency
To date, the differential counting of various fuels in the quota is intended to steer technology development, in particular to support new lignocellulosic and algae-based technology (the so-called second and third generations count double). This whole counting should, however, be reconsidered and redesigned to deliberately avoid market distortions that are harmful to material use or resource efficiency.
From our point of view, multiple counting should be avoided, because the impacts on market distortion are larger than foreseen. Multiple counting for certain feedstocks such as residues and waste makes competition problems even more pressing for other applications. An exception could be incentives for cascading use (see next paragraph). A recent study has also shown that multiple counting has not led to significant technological improvement. 7 Furthermore, multiple counting reduces the volume of production and investment and therefore also the realized CO2 reduction.
Increase Resource Efficiency through Cascading Use
The RED does not offer any incentives for cascading use and is therefore not conducive to promote a circular economy and resource efficiency. The new REMD should make cascading utilization of biomass far more attractive than the direct use of fresh biomass. The REMD's quota rules could include double counting for biomass that comes from a cascade, recycling or secondary streams. Such a regulation would require a pragmatic framework and is crucial for improved resource efficiency in Europe.
The double counting is justified by the fact that a cascading use leads to—at the minimum—double substitution of fossil counterparts; first by replacing a conventional product, possibly even several times in the case of recycling, and at the end of the life, a fossil energy source will be substituted by the same material.
Include Co2-Based Fuels and Chemicals in the Quota
CO2-based fuels (solar fuels, power to gas, power to liquid) as well as CO2-based chemicals and polymers are in their infancy, but experts expect them to be commercially available between now and 2020. Their swift inclusion in a renewable fuels quota (instead of the national biofuel quotas) would, firstly, help this new technology to break through quickly and, secondly, reduce the pressure on biomass and land. CO2 fuels and chemicals require hardly any extra land aside from the land needed to produce renewable power and are, therefore, extremely land-efficient. This also helps to reduce the pressure on land.
Hence, CO2-based fuels and chemicals produced using power from renewable sources should be included in the RED quota.
Two Sides of One Coin: Sustainability Certification and Incentives for Biobased Products
As a future target for a sustainable world, all kinds of biomass for all sectors—such as food, feed, material, and energy—should be certified for their sustainable production. Today, as a first step, biofuels on the European market have to prove the sustainability of their feedstock (based on a very limited set of criteria)—if they want to be eligible for the incentives of the RED. In the near future this procedure will be expanded to the use of solid or gaseous biomass for bioenergy, but only on the voluntary basis of each Member State and again in the context of receiving incentives from the RED.
For other biomass uses, such as food, feed and also industrial material uses, there are no binding certification schemes in place yet. For biobased chemicals and materials, which should be accountable for the proposed expanded REMD quota, the proof of sustainability of the used biomass should be obligatory as it is for biofuels today.
Paradoxically, various initiatives and committees—for example, INRO in Germany, GreenDeal in the Netherlands, and CEN on a European level—are currently discussing which comprehensive sustainability criteria (many more than for biofuels) should be applied to the neglected area of biobased chemicals, materials or products, without discussing any incentives.
Implementing a level playing field between material and energy uses would also mean that obligatory sustainability criteria are only introduced when incentives are provided at the same time. They should not constitute additional hurdles for the industrial material use of biomass. Within the proposed REMD, the same sustainability criteria should be obligatory for the use of biomass in all applications, if the application is to be accounted for in the quota.
There is currently no serious discussion about the fact that sustainability and incentives are inextricably linked for biofuels, but that there is no such link in the debate of biobased materials and their sustainability. A level playing field needs to consider this aspect.
The only possibility to circumvent this difficult situation is to realize a GreenPremium price for the biobased product. This is in fact possible; there are customers that pay an extra price for a “green, environmentally friendly product” at the same technical performance, because they expect an added emotional and strategic performance. 12
Of course, customers willing to pay these GreenPremium prices require a guarantee from the seller that the desired emotional and strategic performance can be obtained by the product. In particular, this means that the biomass used in the process can show a sustainability certification, since this is something valued highly by nongovernmental organizations (NGOs) and the public.
The current efforts to establish a comprehensive set of sustainability criteria for biobased chemicals and materials result from the unlevel playing field between material and energy uses, which means that the material use needs GreenPremium prices in order to survive on the market. These prices can only be obtained with biomass that holds a widely accepted sustainability certification. This however shows the existing weak points in the energy sector that receives political incentives even if only very few criteria are proven. Or in the petrochemical sector that does not have to fulfill any obligations at all.
As soon as the political framework promotes a level playing field between material and energy uses (e.g., through the REMD proposal) and sustainability certifications become obligatory in order to receive incentives, it is important that both sectors have to fulfill exactly the same criteria. The creation of new, one-sided hurdles should be prevented.