USDA report shows EU pellet expansion

Both solid and liquid biofuel use in the EU is driven by climate legislation to reduce GHG emissions by a set amount by 2020. While the result has been a rapidly expanding use of both in the EU energy mix, looking forward trade actions mean that only solid biofuels will likely see growth in imports from North America in the coming years.

Biofuel restrictions

Regulations influencing the EU biofuels market are the Biofuels Directive (2003/30), the EU Climate and Energy Package
(2009/147) and the Fuel Quality Directive (2009/30). The Package includes the “20/20/20” mandatory goals for 2020, one of
which is a 20 per cent share
for renewable energy in the EU total energy mix.

Part of this 20 per cent share is a 10 per cent
minimum target for renewable energy consumed in transport to be achieved by all Member States.
Biofuels have to meet certain criteria to count against the 10
per cent goal.
In the Renewable Energy Directive (RED),
specific sustainability requirements are laid out.
These include minimum GHG (greenhouse gas) emissions reductions, land
use and environmental criteria as well as economic and social criteria, and adherence to International Labor Organization
conventions.

In October 2012, the European Commission (EC) published a proposal on Indirect Land Use Change (ILUC).
The proposal
aims at starting the transition from conventional biofuels to biofuels made from non-food feedstock.
This would be done by
setting a cap on, and phasing out of public support for first generation biofuels after 2020, setting a GHG saving requirement of
at least 60 per cent for new installations, and setting new ILUC emission values.
The
EC hopes the proposal will be adopted
before the end of their mandate in 2014.

During 2009
–
2012, the major part of the bioethanol shipped to the EU was imported as E90, subject to a lower import
tariff.
On from April 3, 2012, the EU closed this popular loophole in the tariff regime.
On February 23, 2013, the EC also
imposed an anti
–
dumping duty on bioethanol imports from the
United States.
Despite these trade barriers, the EU is
expected continue to attract bioethanol from foreign markets.
About 350 million liters of ethanol is expected to be supplied
through preferential trade measures, mainly used by Guatemala, Peru and Pakistan.
The other likely source is Brazil.
EU
imports from the United States are unlikely due to anti dumping duties.

Pellets to surge

On the other hand, pellet exports from North America are expected to continue their upward trajectory through to 2020. Pellet consumption in the EU has grown from 800,000 MT in 2006 to a forecast 7 million MT in 2014. Forecasts to 2020 range from 35 million MT to as high as 80 million MT, massive growth that will be fed from imports. These forecasts vary depending on market and policy scenarios, but regardless point to a surge in demand.

Differences in consumption characterize the European pellet market.
The market can be divided in three regions.
Markets
such as the Netherlands, Belgium and the UK are dominated by large-scale power plants.
In Denmark and Sweden, pellets
are used by power plants but also by households and
by medium scale consumers using wood pellets for district heating.
In
Germany, Austria, Italy and France pellets are mainly used in small-scale private residential and industrial boilers for
heating.

The demand for industrial pellets depends primarily on
EU Member State mandates and incentives, while the
residential pellet market is driven by prices of alternative fuels.
The UK, the Netherlands and Belgium are expected to be the main growth market for pellets, and also the most dependent on
imports.
The large scale use of wood pellets by the power plants in the UK and the Benelux countries is driven by the EU
mandates for renewable energy use in 2020.
The governments of these countries opted to fulfill their obligations mainly by
the use of biomass for
the generation of electricity.

Recently, the UK Government enforced the Industrial Emissions
Directive, which is expected to boost consumption further in 2013 and 2014. The Dutch Government will decide upon the
national renewable energy policy in late summer.
According the draft proposal, old power plants build in the
eighties will have to be closed and biomass use will be capped at 25 PJ per year.

The complete report with graphs and links to reports explaining the national directives can be found here.