DEFRA considers flexible biofuel mandate
The environment department (DEFRA) is considering the "very significant potential” of introducing flexible biofuel mandates to mitigate food price spikes.
A recent research paper suggests that temporarily suspending EU rules requiring fuel suppliers to blend biofuels – made from crops such as maize, barley and oats – into petrol and diesel could reduce a modelled spike in wheat prices by 35%.
But introducing such flexibility into the system could lead to uncertainty for biofuel producers, blenders and investors. It could also make it harder for governments to plot a course to meet EU renewable energy targets.
The idea of a flexible mandate has been developed following publication of the government’s bioenergy strategy earlier this year (ENDS Report, May 2012). The strategy sets out four principles to guide bioenergy use, including regular reviews to ensure its growth is not harming food supplies.
"There are concerns that biofuel and biomass policies will lead to higher food prices than would otherwise be the case,” the strategy says. There is also concern that biofuel use makes food prices more volatile, because biofuel demand is fixed at a certain percentage of fuel and cannot respond to market price signals.
A flexible mandate would mean mandatory biofuel blending rates could be cut when food prices are high, which would reduce price volatility and the size of the peak.
An alternative scheme would allow biofuel blenders to exceed their mandate when prices are low, banking the over-achievement for use when prices are high.
The DEFRA paper modelled the effects of completely suspending EU biofuel mandates and found this could avoid up to 10% of a spike in grain prices and up to 35% of a spike in wheat prices.
It found that suspending US biofuel mandates could avoid an even greater 40% of a hypothetical spike in grain prices, because of the heavy US reliance on biofuel derived from corn.
DEFRA's model was unable to handle the effects of simultaneously suspending both US and EU mandates. "This hints at the significant benefits of coordinated policy,” the paper states.
Despite the limitations of its modelling approach, the work "reveals the very significant potential” of a flexible mandate policy. It is being investigated with some urgency because it could "in principle” be considered during the 2014 review of EU renewable energy targets, the paper says.
The trigger for suspending or reducing the biofuel mandate would need careful design, the paper warns. "To provide the predictability needed to avoid panic behaviour, a publicly known rule would be required,” it suggests.
"Early and constructive engagement” with the biofuel industry, the European Commission and other member states will be essential to develop credible and acceptable options, the paper concludes.
(Source endsreport.com 16 July 2012),
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