derive a threshold value per tonne of CO
reduction thatmust be achieved if biofuels are to compete in price withpetrol and diesel in Europe. The gap between themarginal costs of biofuels and traditional fuels moti-vates the analysis of different instruments that would beneeded to encourage the uptake of biofuels: an exciseduty reduction, a subsidy to the production of biofuelsand/or relaxation of tariffs on imports from cheapernon-EU producers.
In addition, this threshold value, orthe cost of reducing a tonne of CO
emissions usingbiofuels, can be contrasted with the marginal costs of achieving CO
emission reductions elsewhere. It can becompared, for example, with the cost of technicalmeasures in the transport sector to reduce greenhousegas emissions or with the price of buying allowances inthe CO
emissions trading market.The remainder of this paper is structured as follows:Section 2 provides the policy and technical contextsurrounding the adoption of biofuels in Europe. Section3 computes the threshold value per tonne of CO
reduction that needs to be achieved for biofuels to becompetitive with conventional transport fuels in Europe.Section 4 outlines the policy implications and Section 5summarises our conclusions.
2. European policy and technical context
In accordance with the ‘‘ﬂexible mechanisms’’ of theKyoto protocol, the EU has introduced a CO
emissionstrading scheme that commenced on a pilot basis inJanuary 2005.
Although not included in this pilotphase, reducing the transport sector’s emissions, and inparticular emissions from road transportation, is apressing issue as the latter currently represent 19% of total EU CO
. The EuropeanCommission foresees that three alternative transportfuels, hydrogen, natural gas, and biofuels, will replacetransport fossil fuels, each by 5% by 2020 (Commissionof the European Communities, 2001).Biofuels are an alternative motor vehicle fuel pro-duced from biological material and are promoted as atransitional step until more advanced technologies havematured. Hydrogen and natural gas are seen as mediumrather than short-term solutions, due to infrastructural,cost and technical challenges.Biofuels are viewed as an essential element in thedevelopment of alternative fuel markets, and someinitiatives have already been introduced to promotebiofuels in the EU. Under the European Directive on thepromotion of the use of biofuels or other renewablefuels for transport (European Parliament and Council,2003), Member States are instructed to ‘‘ensure that aminimum proportion of biofuels and other renewablefuels is placed on their markets,’’ and reference valuesfor national targets are given as 2%, by 2005, and5.75%, by 2010.
Furthermore, Member States arepermitted to reduce excise duties on biofuels
(Councilof the European Union, 2003). The Green Paper‘‘Towards a European Strategy for Energy Supply’’supports this initiative, and it also serves the reforms of the Common Agricultural Policy to support ruraleconomies; by decoupling some subsidies from foodproduction, land is released for potential energy cropproduction (Commission of the European Commu-nities, 2003).The EU directive lists 10 products that should beconsidered as biofuels. Of these, there are two that havebeen most frequently employed to date: (i) Biodiesel,produced from plant oils, such as rape seed, soybean orpalm, or from organic waste material; which can be usedin a modiﬁed diesel engine or processed to be used in aconventional diesel engine; and (ii) bioalcohol, such asmethanol and ethanol, which can be produced fromcereal crops or sugar beets and can fuel modiﬁed petrolengines.These categories of biofuels have gained the mostattention in the EU as they are produced from materialsthat are suitable for agricultural production in the EU,or are widely available waste products. Currently, otherpossibilities are either prohibitively expensive or energyintensive in their production,
due mainly to the smallscale of operation derived from the lack of marketdevelopment for these fuels. Economies of scale mayreduce these prices signiﬁcantly in the future. For ageneral overview on biofuel choices and their character-istics seevan Thuijl et al. (2003)orFulton et al. (2004).
There are many challenges facing alternative fuels beforethey can gain widespread acceptance in the transport
ARTICLE IN PRESS
There are other schemes possible to promote biofuels, such ascarbon-based fuel taxes, investment incentives, biofuels obligation, ortender schemes. We are grateful to an anonymous reviewer forpointing this out. In this paper we only deal with the three mostcommon schemes currently in place.
Directive 2003/87/EC of the European Parliament and of theCouncil establishing a scheme for greenhouse gas emission allowancestrading within the Community and amending Council Directive 96/61/EC. This text will apply to the existing 15 Member States, thoseAccession States who joined in May 2004 and other countries (such asIceland, Norway and Switzerland) who choose to participate.
In the ﬁrst pilot phase (2005–2007) trading is conﬁned to CO
emissions from power stations in excess of 20MW (except incinera-tors), oil reﬁneries, smelters, manufacture of cement (
500tonnes/day), ceramics including brick, glass, and pulp, paper and board(
20tonnes/day). See footnote 2.
Directive 2003/30/EC. Although these targets are indicative ratherthan mandatory, failure to meet them requires Member States toexplain the discrepancy in their annual biofuels progress reports.
In the medium term, technological advances in the thermochemicalprocessing of biomass could produce biodimethylether, synthetic fuelsand hydrogen, to take a few examples.
L. Ryan et al. / Energy Policy 34 (2006) 3184–3194