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86 5 Socio-economic and

86 5 Socio-economic and political analyses 5.4.3 Fair competition Recently, the EC decided to open up the energy market (liberalisation). Energy producing and distributing companies are becoming responsible for the buying and selling of energy to the consumers, who in the future can buy energy from any energy company. An open market is characterised by fair competition between the producers of the goods. This means that there should be no regulations favouring one source of energy to another and that the economics of bioenergy will ultimately determine the production and use of biofuels. Unfortunately, internalisation of external costs is not widely practised by the energy producing and distributing companies: the environmental damage resulting from energy production is not reflected in the cost price. However, in some countries the national regulations concerning the emissions from new installations seriously limit the development of new lines of energy production such as bioenergy (Germany, The Netherlands). It is likely that in these countries initiatives for bioenergy will be transferred to countries with less severe regulations as a result of this. In addition to this, environmental groups such as Greenpeace have shown that in total fossil fuels receive much larger subsidies for their production than renewables (959.5 million US$ and 131.3 million US$ respectively annually in the period 1990-1995) (Greenpeace 1997). 5.4.4 Introduction of biofuels in agricultural practice The introduction and expansion of biomass from agricultural and forest sources is difficult to achieve. Farmers experience three main constraints with biofuels: unfavourable farm economics, poor integration in existing cropping systems and poor logistics concerning harvest and post-harvest management. Farm economics have already been discussed in section 5.2. Poor economics are a feature of all biofuels alike, although clear differences between crops exist. The other constraints are known mostly of arable cropping systems with a four-year rotation of annual crops. Farmers in Germany, Denmark and the Netherlands know that perennial crops such as Miscanthus and willow do not fit well in their rotations. The establishment of perennials requires high investments and it takes about 5 years before perennials begin to pay off. Thus, farmers are not able to respond flexibly to changes in prices or financial support, e.g. area payments under the set-aside scheme. In addition, perennials in arable farming shorten the rotation, which may lead to an increase in infestation pressure. A higher proportion of sugar beet and rape seed in the rotation may have the same effect. Farmers also experience difficulties with the harvest of perennials and the subsequent post-harvest management. Appropriate machinery for the harvest and chipping is often not available, and storage facilities and transportation are inadequate as well. National governments – facilitated by the EU – have implemented some financial incentives to stimulate farmers and foresters to produce biofuels, for example: • Growing energy crops on set-aside land. The set-aside premium given to the farmer makes the cultivation of energy crops more or less economically viable. • Payments per ha/yr for oil seed production and the energy conversion of biomass that could also be used for food or feed (Switzerland, only for pilot and demonstration plants). • Investment subsidies for the production of biomass from annual and perennial energy crops (Development Law 2601/98, Greece), smaller biomass based boilers (Law on use of sustained energy sources, Denmark). Other financial incentives can be given either in the shape of subsidies or security of demand, but can also be integrated with other policy goals. An example of the latter is the policy regarding biogas in Denmark: when the Water Environment Act I was launched in 1987 with a demand for increased capacity for storing manure, a range of central biogas plants was established. By 1995 the increased capacity prescribed by law should be reached, and the expansion stopped. Today only few new biogas plants are established, even though most biogas plants have a waiting list of potential suppliers of manure (Hjorth- Gregersen, 1998). It has to be noted that financial incentives are not the only means to encourage the production of biofuels. Other policy instruments may be helpful as well, in particular extension services and research and development on cultivation and harvest. Certainly of major importance is the influence of the Common Agricultural Policy. Currently, the growing of energy crops on set-aside land may be interesting for farmers. However, the opportunities following the requirement that farmers leave 15 % of the land fallow are decreasing, now that Community food stocks are on the decline. Food production will remain

5.4 Political factors 87 the core business of European farmers, and energy crops will be a valuable addition to farmers’ income in times of surpluses. 5.4.5 CO2-reduction policies Following the Kyoto convention, virtually all countries have implemented a general policy to increase production from alternative energy sources. For instance in the Netherlands, where a goal is set by the Ministry of Economic Affairs for a 10 % production of alternative energy in 2020. It is a goal of the Danish government that 20 % of the Danish electricity consumption in 2003 should be produced from renewable energy. In most countries, the means to achieve such goals and the utilisation of which types of energy sources are to be particularly encouraged have not been decided and has practically been left to the market to decide. The Kyoto protocol states that extra carbon sequestration through forestry can be taken into account with 1990 as the reference year. To which extent changes in C-sequestration caused by changes in land use (e. g. changes of crops or ploughing at less depth) are allowed to be included is not clear yet. On this contribution a decision will be made at the Conference of Parties (COP6) in The Hague, November 2000. The European Commission is critical about the recognition of C-sequestration as a measure to achieve the Kyoto goals. The reason for this is a fear that particular soils, which have the potential to contain a lot of carbon, would benefit from this. The United States is one of the countries that could profit from it. Nevertheless, if farmers could receive payments for C-sequestration through land use changes, this could be interesting for European farmers too. It could give an extra profit to farmers growing energy crops, provided that the carbon content in the soil increases by growing the energy crop. In some countries, e.g. Germany and the Netherlands, the subject of renewable energy sources is not being dealt with by a single ministry or department, but by a number of different ministries as well as various departments. Each governmental body deals with a different aspect of the subject matter, as for example economical, ecological or agricultural factors. Consequently, governmental opinions on the perspectives of biofuels may differ according the governmental body. In the Netherlands, for instance, biofuels are favoured mostly by the Ministry of Economic Affairs whereas the Ministry of Agriculture shows less interest in the subject. In the “White Paper” (1997) on renewable energy the European Commission declares to make additional proposals for legislation and amendments to existing directives, including tax exemption on renewable energy sources. The Commission wants to encourage Member States to promote renewable energy. This can be done by flexible depreciation of renewable energy investments, favourable tax treatment for third party financing of renewable energies, start up subsidies for new production plants, green funds, public renewable energy funds and soft loans and special facilities from institutional banks (White Paper 1997). Detaxation of biofuels is currently made on a limited scale. EC Directive 82/81 on harmonisation of the structures of excise duties allows such detaxation on a pilot scale. The Commission considers a market-share of 2 % for liquid biofuels (almost reached by Austria, Germany, France and Italy) still as a pilot phase. Examples of government incentives are: • Guaranteed higher financial return for renewable energy than for conventionally generated electricity (Stromeinspeisungsgesetz, Germany). • Regulation of electricity from renewable sources on the grid (Law 2244/94, Greece) and of licensing procedures (Greece). • Tax relief on biofuels. A tax relief is for example the exclusion of RME from the oil tax (Mineralölsteuerbefreiung, Germany, Switzerland, only for pilot and demonstration plants). In the Netherlands exclusion of bioethanol from the energy tax takes place as a pilot project and for electricity and heat that has been produced sustainably this is currently being proposed. In France there is a tax relief on RME, SME and ETBE. The Austrian Law on Tax Reform 2000 exempts the use of pure biodiesel and the blending of biodiesel up to 3 %. • Green certificates: energy that has been produced sustainably may opt for a green certificate (currently being investigated in the Netherlands). Labelling of renewable energy takes place in Germany.

Bioenergy Update 10-02 - General*Bioenergy
Maximising the environmental benefits of Europe's bioenergy potential
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