Economic Development Distance Learning Consortium
Economic Development Distance Learning Consortium

UK Biofuel Policy: Economic Opportunity or Ecological Threat?

1. Introduction

This paper focuses on the contribution that industrial symbiosis can make to the current debate on the role of bio-fuels in reducing greenhouse gas (GHG) emissions to tackle global warming. The United Kingdom (UK) Government regards its promotion of bio-fuels as making a major contribution to sustainable development objectives in three ways:

  • reducing CO2 equivalent emission levels generated by UK transport;
  • promoting rural diversification and offering UK food and fibre producers a new market for their output;
  • increasing the level of fuel security, so that the UK is less dependent on imports of fuel.
  • However, there is now clear evidence that first generation bio-fuels fail to deliver these sustainable development objectives in an eco-efficient manner. UK policy instruments, such as the Renewable Transport Fuel Obligation (RTFO) order, far from promoting development of sustainable alternatives, may in fact be adding to habitat loss, damaging carbon sinks and deepening the problems of global hunger. Had policy-makers sought to incorporate the principles of industrial symbiosis when shaping a policy with respect to bio-fuels, they could have avoided many of these unintended detrimental consequences.

    Current UK bio-fuels policy is a good example of what a recent Parliamentary Report termed “an example of silo policy-making” and “a clear example of failure to co-ordinate…policy” (House of Commons Environmental Audit Committee, 2008: paras. 78 & 93). These observations emphasise the need to develop second-generation bio-fuels that comply with the principles of industrial symbiosis, to ensure that the cure is not worse than the disease. The paper is structured to demonstrate these points.

    It starts by reviewing present UK arrangements for promoting the use of bio-fuels from food and fibre production, and subjects these to a critical evaluation. It then considers the potential of second generation bio-fuels, before suggesting how the application of industrial symbiotic techniques can foster a shift to these more appropriate alternatives. In the process, the argument demonstrates how an understanding of the symbiotic relationship between food and fibre production and the environment can avoid perverse outcomes in which instruments designed to promote more sustainable management of resources aggravate the problem they are designed to address.

    2. First generation bio-fuels and UK government policy

    Bio-fuels are defined as liquid fuels derived from organic matter. Most are currently produced from crops originally developed for food and fodder. These are known as ‘first-generation’ bio-fuels, from which two main products are derived: bio-diesel from oils such as rendered animal fats, rapeseed and palm-oil; and bio-ethanol from the fermentation of any feedstock that contains a high content of sugar or starch, such as sugar cane, sugar beet, maize, wheat and barley. Bio-mass, by contrast, consists of solid organic matter such as wood or straw, which is burned to generate heat or electricity (RCEP, 2004; Illsley, Jackson & Lynch, 2007a). Together with other non-fossil organic fuels, these products collectively make up what has come to be termed ‘bio-energy’.

    The main policy instruments designed to stimulate the production and use of bio-fuels in the UK can be grouped under two headings. Firstly, there is a set of fiscal incentives to encourage the production, distribution and consumption of bio-fuels. UK farmers can access European Union (EU) Common Agricultural Policy (CAP) grants under the Single Farm Payment and the Entry Level Environmental Stewardship Scheme to convert farmland to bio-fuel production. They are eligible for the Energy Aid Payments Scheme, receiving €45 per hectare for growing bio-fuels on non set-aside land. In addition, they can grow bio-fuels on set-aside land, and receive set-aside payments plus what they can realise for their crop. Collectively, these agricultural subsidies represent a powerful set of incentives to encourage UK farmers to divert farmland to the production of feedstock for bio-fuels. In the processing sector, existing capital investment subsidies have been extended to new bio-fuel refining capacity. In the retail distribution of bio-fuels, filling stations have been offered installation grants; in promoting their consumption drivers enjoy concessionary fuel duty rates.

    Secondly, there are specific arrangements to implement the EU Bio-fuel Directive (CEC, 2003). A market-based trading scheme incentivising the uptake of bio-fuels by UK fuel suppliers has been created through the Renewable Transport Fuel Obligation (RTFO) order approved in 2007, which takes effect on 15 April 2008. This statutory instrument places an obligation on all UK fuel suppliers to source 5% of their UK road fuels sales from bio-fuels by 2010 (a target which is planned to rise steadily thereafter). The RTFO will rely on market incentives to promote bio-fuels through the generation of tradable certificates, drawing on experience with a similar scheme pioneered by the UK packing industry for compliance with the EU Packaging Waste Directive (Brady & Jackson, 2003).

    A Renewable Fuels Agency has been created to issue RTFO certificates to those who meet their obligations in supplying bio-fuels. As with the UK Packaging Waste Recovery Scheme, these arrangements allow those unable to meet this target to buy out their obligation. The fees so realised are then redistributed to other fuel suppliers according to the number of certificates they redeem or surrender. The trading scheme is designed to provide obligated suppliers with the flexibility to determine their own optimal fuel supply strategies, which will reflect differences in the bio-fuel production and refining costs they face. The intention is to allow UK fuel suppliers to meet the 5% bio-fuel obligation for 2010 required under the EU Directive, together with subsequent higher obligations, through the most cost-effective routes available to them.

    The underlying flaw in this approach is its implicit presumption that any bio-fuel represents a preferred alternative to the use of fossil fuels for powering road vehicles. At present all bio-fuels are eligible to receive the full range of public support, with no attempt made to favour those with the most benign environmental impacts. As the Royal Society observes: “Current policy frameworks and subsidies for bio-fuels are not directed towards reducing GHG emissions, but rather provide incentives for national supply targets. As a result, there is no incentive to invest in the systems that would deliver low GHG bio-fuels” (Royal Society, 2008: 6).

    Some evidence was submitted to the Parliamentary inquiry on bio-fuels asserting that the main motivation behind their promotion was not their contribution toward reducing GHG emissions in fulfilment of EU Kyoto obligations. The claim was made that bio-fuel subsidies and obligations were primarily a means of opening up a new market for EU farmers, which would give a valuable boost to farm incomes. Promotion of bio-fuels is seen by certain authorities as a means of alleviating the effects of CAP reform, which is gradually de-coupling agricultural support payments from production. Prima facie support for this view is provided by pressure for tariffs to prevent cheaper sources of bio-fuel feedstock from being imported into the EU (House of Commons Environmental Audit Committee, 2008: para. 86).

    3. Evaluation of the UK RTFO approach

    The approach adopted in the UK to promote the uptake of bio-fuels has had serious unintended consequences, both in the UK and within the countries that supply the UK with imported feedstock for processing into bio-fuels. The concept of opportunity cost is central to the understanding of these problems, since it measures the value attached to the best alternative use to which a resource can be put. In the case of bio-mass, for example, industrial symbiosis in forest industries has promoted on-site combined heat-and-power (CHP) systems powered by what would otherwise be sawmill waste, and used this inter alia to provide minimal cost energy for running integrated mills for pelletising sawdust. The resulting wood pellets supplies can then be used as affordable renewable energy for the area-heating of homes in adjacent rural areas that are unable to access low-cost mains gas supplies, so helping to alleviate rural fuel poverty (Illsley, Jackson & Lynch, 2007a & 2007b).

    The key to such win-win outcomes lies in identifying and realising the opportunities for introducing closed-loop symbiotic technologies that allow conventional through-put production processes to be turned into added-value ‘round-put’ systems (Korhonen & Snäkin, 2005). In the example above, this permits the conversion of a valueless, and indeed costly, waste-product into useful bio-mass renewable energy that meets a gap in the market. The sawdust and chips used in on-site CHP, and for the subsequent production of wood pellets, had previously either to be sent to landfill in the face of increasing landfill site charges, or else offered to panel producers at very low price, to be shipped across Europe for panel manufacture. When the savings in landfill charges and in fuel and energy costs of these forms of disposal are taken into account, the alternative resource value, or opportunity cost, of producing wood pellets is shown to be negligible or even negative.

    On-site integrated processing systems for forest industries demonstrate a central precept of industrial ecology. This seeks to replicate natural ecosystems and create a symbiotic relationship between on-site operators, so that the waste of one provides the feedstock of another (Jackson, 2005). By contrast, if the lessons of industrial symbiosis are neglected, the opportunity costs of promoting any form of feedstock for bio-fuels can be extremely high. These costs can be measured by considering the best alternative uses to which the resources committed to such first generation bio-fuels can be put. It is convenient to summarise these under two headings: firstly, habitat loss and damage to carbon sinks; and, secondly, the impact on global food supplies.

    Habitat loss and damage to carbon sinks

    It is apparent that the policy-makers assembling the RTFO and related incentives for the production of first generation bio-fuels have taken little account of the opportunity costs measured in terms of bio-diversity and loss of carbon sequestration attached to the diversion of lands in the UK and elsewhere to such feedstock uses. Freed of other constraints, suppliers of bio-fuel feedstock will opt for the least-cost sources of supply. In the UK, land prices are lowest amongst the least-productive land holdings, such as upland rough grazings, peat lands, marshes and bogs. In other parts of the world, where viable land markets are not yet fully developed and many holdings lack title, are held under customary tenure or remain in the public domain, land prices may fail to reflect their potential commercial productivity.

    Whether feedstock is sourced from countries with sophisticated or undeveloped land markets, in neither situation is this likely to incorporate a land pricing system that attaches market value to benefits that cannot be realised by private operators. Such benefits include the contribution towards bio-diversity and carbon-sequestration offered by tropical forests and by our domestic peat lands, rough grazing and marsh habitats. These tangible benefits cannot readily be secured by private ownership, because they are non-marketable externalities that are part of the global life-support commons created by natural eco-systems. Where the process of governance has the capability, some of the assets generating such benefits are protected by various nature conservation orders, with owners given grants for their maintenance. Nevertheless, even in the UK, planning authorities may allow the protection afforded by such designations to be over-ruled, where there is deemed to be an over-riding national interest in approving a development proposal.

    Incentives for bio-fuel feedstock production that unintentionally have the effect of increasing pressure on such resources are hardly likely to qualify as eco-efficient means of tackling global warming and promoting sustainable land use. Palm-oil is a first generation feedstock for bio-diesel. It is a major internationally-traded commodity, with a rapidly-expanding market focused primarily in food and cosmetics. Palm-oil production is also the main cause of permanent rainforest loss in Indonesia and Malaysia, creating both a serious depletion of bio-diversity and a reduction in the world’s carbon-fixing capacity (UNEP, 2007).

    According to evidence placed before the House of Commons Environmental Audit Committee (2008: para. 44), “demand for bio-fuels is already leading to more deforestation in Indonesia and Malaysia”, because “20% of the EU’s bio-fuels market is expected to be supplied from these two countries”. The impact of EU bio-fuel feedstock incentives on these fragile habitats can be either direct or indirect. EU palm oil imports doubled over the period 2000-06, mostly to substitute for home-grown rapeseed oil that was diverted from food to fuel users as a result of CAP and related Member State incentives (ibid).

    A similar situation exists with regard to the pressure exerted on commercially low-value lands in high-income countries such as the UK. First-generation bio-fuels are not ‘carbon-neutral’. Although they absorb as much carbon in their growing as they release in their burning, this does not take account of the costs of production, processing and distribution. Additional carbon is directly released from the use of fertilisers, plant and machinery and distribution vehicles. More significantly, the potential for carbon-sequestration of the alternative uses for lands they may encroach upon will be lost, a factor only clearly identified by considering the opportunity costs of resources employed for bio-fuel feedstock.

    If forests are cut down to free up land for growing bio-fuels, as EU CAP bio-fuel incentives would permit, it has been estimated that it would take between fifty and one hundred years for the substitution of bio-fuels for fossil fuels to compensate for the initial release of carbon (New Scientist, 2007). A more effective way of reducing GHG emissions than using UK crop land for growing bio-fuel feedstock would be simply to restore the country’s natural forest and grassland habitats, which have been depleted by the intensive cultivation fostered by CAP production-based subsidies. Not only would such restoration boost bio-diversity. Dr. Dominic Spracklen of the University of Leeds referred the Parliamentary Inquiry into bio-fuels to his research findings which indicated that “re-foresting land sequesters two to nine times more carbon over a thirty year period than the emissions avoided by the use of bio-fuels” (House of Commons Environmental Audit Committee, 2008: para. 50).

    Impact on global food supplies

    Calculations by the Royal Society (2008) demonstrate that it would be wholly impractical to expect the UK to provide sufficient feedstock to meet what is a moderate 5% target from its own land resources, even if the most productive of the first generation sources were to be used and land currently left fallow were to be pressed into production. So ‘fuel security’ is an ephemeral objective. Without a major re-appraisal of potential UK feedstock, meeting the 5% target will require UK road fuel suppliers to enter the international market for such feedstock. In doing so, they impinge on global food security.

    Jan Siegler, the UN special rapporteur on the right to food, was reported by the BBC (2007) as saying that it was “a crime against humanity to divert arable land to the production of crops which are then burnt for fuel”. His concern reflected the detrimental impact bio-fuel feedstock was having on maintaining access to food supplies amongst the world’s hungry people. IMF data demonstrates the recent surge in world food prices, measured in real terms (Mercer-Blackman et al, 2007). This has been caused by a combination of the incremental effects growing prosperity in India and China, which is gradually boosting demand for cereals for meat and dairy production; localised droughts in some key suppliers such as Australia; and the sudden impact of diversion of supplies into bio-fuel feedstock, stimulated by United States (US) and EU policies.

    The unanticipated creation of a large, and wholly artificial, new global market for first generation bio-fuel feedstock, supported through market intervention by US and EU governments, has been sufficient to break the thirty year decline in world food prices, measured in real terms, which started after recovery from the initial oil price surge in 1974. In 2000, the US converted some 15 million tonnes of its maize harvest into ethanol. By 2007, this had risen to 85 million tonnes, with the world’s largest exporter of maize now diverting more of this crop into domestic bio-fuel feedstock than it exports (The Economist, 2007: 83).

    Sen (1981) demonstrates that the relationship between poverty and famines is complex. Nevertheless, rising food prices squeeze food entitlements and reduce overall food security, exposing vulnerable sectors of the population in low-income nations to higher risk of famine and starvation. Because rising food prices hit living standards in low-income nations much more severely than high-income ones, the International Food Policy Research Institute estimates that the expansion of first generation bio-fuel feedstock could reduce calorie intake by 4.8% in Africa and 2.5% in Asia by 2020 (The Economist, 2007: 85).

    4. The potential of second-generation bio-fuels and the contribution of industrial symbiosis

    ‘Second-generation’ bio-fuels are sourced from feedstock which is not diverted (at least directly) from food and fodder uses. These require symbiotic technology that utilises the waste by-products of food, fodder and fibre products. The same technology can be used to establish markets for new products which can be planted on land that is currently fallow or unsuited to other forms of commercial crop production. In either case, the criterion applied to the usage of these products is their capacity to reduce GHG emissions, rather than simply to supply additional bio-fuel feedstock.

    Figure 1 illustrates the possibilities available. Depending on the feedstock and the type of bio-fuel required, conversion can be undertaken through a range of biological, chemical and thermal processes.

    Fig1AJ

    There are three primary sources of feedstock: plant oils and sugars/starches which provide the focus for first generation bio-fuels; and lignocellulose. The first two sources require little processing before conversion, but lignocellulose must be broken down by physical, chemical or enzymic means to sugars before conversion.

    Figure 1 also lists chemical end-products. This is an important aspect of the sustainable use of bio-mass, which the current focus on bio-energy has neglected. Plant material offers one source of renewable energy, which solar, tidal, nuclear and wind power can supplement. By contrast, plant material is the only viable alternative source of carbon to fossil oil available for the production of chemicals. This makes integrated bio-refineries capable of supplying fuels and chemicals an attractive proposition, since the revenue from chemical manufacture, which requires only 5-10% of total oil production, is comparable to that generated by the 90-95% used for fuel and energy (Royal Society, 2008: 20).

    Figure 2 illustrates the basic concept of the bio-refinery.

    Fig2AJ

    This applies the principles of industrial symbiosis, with the wastes from a primary process providing the inputs to secondary processes, thus minimising through-put and maximising round-put. Such bio-refineries can encompass a range of sizes, and need not seek the scale economies integral to viable petro-chemical complexes. A simple example is provided by integrated forest industries and papermill complex that has been developed at the Uimaharju industrial park in Finland (Korhonen & Snäkin, 2005). The essential point is that such a refinery creates value from all parts of the process, aiming to utilise the whole of the input. Under such conditions, diversion of feedstock from food and fodder can be minimised, because the bio-refinery can recycle the waste by-products of food and fodder rather than focusing on the primary product itself.

    A bio-refinery that is set up to sequester some or all of its CO2 emissions could create a fuel chain with a negative overall GHG metric (Royal Society, 2008: 28). In the foreseeable future, developments in bio-refineries will allow the use of lignocellulose as the primary feedstock, supplemented by other waste products. Since a conventional forest industry complex is normally able to find markets for only 50% of the wood fibre it processes, the possibility of using its lignocellulose not just for on-site thermal and electrical energy and for pelletisation, but also as feedstock for bio-refineries, would transform the economics of the sector.

    Such symbiotic opportunities would also allow bio-fuel feedstock to be decoupled from food and fodder products. This would alleviate pressures on world food prices and attenuate its detrimental effects on habitats and ecosystems. Lignocellulose is the major component of cell walls and makes up the bulk of the biomass of crops planted for energy, such as trees and perennial grasses. In addition, lignocellulose feedstock can be derived from the co-products of the agricultural production of food and fodder crops, such as straw and cane bagasse; the waste parts of such products which are currently not harvested or processed; and the co-products and waste of the forestry, pulp and paper industries.

    The potential of bio-fuel production from such a second-generation feedstock is considerable, since this embraces all forms of bio-mass, including wastes and residues. However, conversion into bio-fuels is less straightforward than for sugars, starches and oils, since it currently requires energy-intensive chemical and physical pre-treatments to open up the cell walls for enzymic hydrolysis. Set up to be part of a symbiotically-designed bio-refinery, such pre-treatments could themselves utilise on-site bio-mass energy sources, thereby minimising GHG emissions. As reported by the Royal Society (2008: 11), Ottawa currently possesses the world’s largest demonstration facility of lignocellulose ethanol derived from wheat and barley straw and maize stover, established by the Iogen Corporation.

    Some 1.55 billion tonnes of agricultural residues such as maize stover, straw from wheat, barley, oats, rice and sorghum, and cane bagasse is produced world-wide annually. Within the UK, average annual straw yields from wheat alone amounted to 5.9 tonnes per hectare over the period 2003-05 (OECD & FAO, 2007). In addition, second generation lignocellulose bio-fuel feedstock can be derived from perennials such as switchgrass and miscanthus, which can be cultivated with low inputs on marginal land unsuitable for food and fodder crops. Similarly, bio-fuel refineries capable of treating lignocellulose can provide an alternative end-market for short rotation woody crops such as coppice willow planted for bio-mass energy. Ultimately, the value of any forestry plantation can be reconfigured as consisting of both primary wood products and secondary bio-mass energy and fuel outputs.

    Defra (2007) estimates that the UK currently generates 1 million tonnes of lignocellulose forestry waste annually, to which can be added 4.7 million tonnes of municipal waste paper. Bio-refineries can combine the processing of lignocellulose waste with other waste that needs less processing. About half of the content of municipal solid waste (MSW) consists of organic food and packaging. Calculations by the Worldwatch Institute (2006) indicate that a city of one million people generates sufficient MSW to produce feedstock for 430,000 litres of ethanol per day. This would meet the fuel needs of more than a third of the population of a city of this size, at a per capita fuel usage equivalent to current rates in France.

    5. Conclusions

    The potential markets for bio-mass available through the use of symbiotic processing systems indicated above suggest that there is an urgent need to switch policy incentives away from the promotion of bio-fuels per se. Policy measures should be re-oriented towards second-generation symbiotic forms of feedstock that both minimise GHG emissions, and also offer sustainable land use options which avoid the diversion of feedstock from food and fodder usages and the destruction of habitat and carbon sinks. This entails a re-focusing of market instruments such as the RTFO, that currently fail to discriminate between first and second generation sources of bio-fuel feedstock.

    The UK Government has taken note of these concerns. A recent publication (Department of Transport, 2008) has supplemented the RTFO order, by requiring fuel suppliers to incorporate the net GHG saving and sustainability of their bio-fuels in order to receive RTFO certificates. It also sets specific GHG and sustainability targets related to “the level of [GHG] savings we expect to see from bio-fuels used to meet the RTFO the proportion of bio-fuels from feedstock grown to recognised sustainability standards, and the amount of information we expect to be included in sustainability reports” (Government News Network, 2007). From April 2010, it is proposed that RTFO certificates will be awarded, not simply for the amount of bio-fuels used, but on the basis of the GHG emissions these save.

    This retrospective tightening of requirements for public subsidy confirms that, in the rush to promote first generation bio-fuels, the policy implications were not adequately tested against the criteria of sustainability. Paradoxically, defra (2007) recently issued its action plan for embedding an eco-systems approach in determining how best to secure a healthy natural environment. This sets out criteria for embedding an eco-systems approach in UK policy-making:

  • taking a more holistic approach to policy-making and delivery, with the focus on maintaining healthy eco-systems and eco-system services;
  • ensuring that the value of eco-system services is fully reflected in decision-making;
  • ensuring environmental limits are respected in the context of sustainable development, taking into account eco-system functioning;
  • taking decisions at the appropriate spatial level while recognising the cumulative impact of decisions;
  • promoting adaptive management of the natural environment to respond to changing pressures, including climate change.
  • Elements of first generation bio-fuels policy undermine each of these objectives.

    In its recent report, the Royal Society (2008: 63) compounds this criticism by arguing that the rush to support first generation bio-fuels has also drawn attention and resourcing away from the need to fund research and development of second generation symbiotic sources of bio-fuel feedstock. It might be thought that the main reason efforts have been directed towards first generation sources of bio-fuel feedstock is that this provides a cost-effective option compared to the efforts required to put on-stream second generation symbiotic processing. However, this is not the case. Both in terms of financial and economic cost, first generation feedstock provides not only a quick but also a very expensive fix.

    A report by the Global Subsidies Initiative (2007) found that in 2006 the EU and its individual Member States subsidised bio-fuels by some €3.7 billion, excluding the CAP payments that growers could expect to receive. This is the equivalent of €1.1 per litre of ethanol, and €0.55 per litre of bio-diesel. On this basis, the cost of obtaining a one tonne reduction of CO2 equivalent, using ethanol from sugar beet, is between €575 and €800, while for bio-diesel from rapeseed it runs at over €600. As the Global Subsidies Initiative observes, this represents a very poor use of scarce resources, regardless of any other detrimental impacts: “The cost per tonne of reductions achieved through public support for bio-fuels made from crops in the EU could purchase more than 20 tonnes of CO2 equivalent offsets on the European Climate Exchange” (GSI, 2007).

    In addition to switching the basis on which RTFO certificates are issued to the amount of GHG emissions saved, greater emphasis needs to be placed on a strategic over-view of bio-mass strategy, so that renewable energy and fuel policies harmonise (UN-Energy, 2007). This would allow the development of bio-refineries that make use of technology capable of converting lignocellulose into bio-fuel feedstock as well burning it to generate heat and electricity. Central to these aims is the creation of a set of metrics that allows sensible comparison of options. This would incorporate the principles of Life-Cycle Assessment (LCA) for individual bio-mass elements, the certification and auditing of alternative processing methods through eco-management and assessment (EMAS) techniques, and evaluation of the sustainability of overall policy options by the use of strategic environment assessment (SEA).

    The Royal Society contends that without a coherent and comprehensive approach to the development of bio-fuels in the UK, “many of the technologies that could deliver the greatest benefits will not be developed, and the bio-fuels sector will become ‘locked-in’ to a system that is sub-optimal, both in terms of efficiency and sustainability” (2008: 63). The role of industrial symbiosis is central to delivering these benefits. The application of its concepts should help ensure that greater protection is extended to the populations of the world most exposed to the unintended deleterious consequences of ill-formulated policies favouring first generation sources of bio-fuel feedstock.

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    Figure 1: Thermal, biological and chemical routes to bio-fuel and chemical production (Source: Royal Society, 2008)

    Figure 2: A bio-refinery concept based on integrated biological and thermal processing for transport fuels and chemicals (Source: Royal Society, 2008)