Uneven returns? The economics of EU biofuels policy

Europe is reforming its biofuels policy due to concerns raised about its impact on global land use change patterns and global food markets. The negative environmental impacts of the biofuels policy have been well demonstrated, but what is less clear are the economic implications. T&E, the EEB, BirdLife Europe and IISD have therefore funded this report to evaluate the costs and the benefits of the EU’s biofuels policy and its implications for the EU governments and citizens, who are currently facing economic hardship.

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The report finds that the cost of biofuel subsidies was between 9.3bn and 10.7bn in 2011, yet estimates of environmental, social and economic impacts show only marginal benefits at best. Therefore the report casts doubt on the wisdom of supporting biofuels in the future.

The EU study was followed by 3 national reports assessing the cost of biofuels subsidies in France, United Kingdom and Spain. The analysis highlighted the high costs of support mechanism borne by society against the limited or even negative environmental effects of some biofuels. When ILUC factors are taken into account, in fact, conventional biodiesel led to a net increase of emissions compared to conventional diesel in France and Spain.

CORRECTION NOTE: On 23 August 2013, the International Institute for Sustainable Development (IISD), author of the study, corrected the estimates of the public support the EU biofuels industry received in 2011. The revised overall estimate for EU biofuels subsidies is now €5.5-6.9 (average 6.2) billion per year, and not €9.3-10.7 (average 10) billion per year, as originally published in April 2013. According to IISD, the revision is due to a calculation error on the volume of biofuels eligible for tax exemptions in certain countries. All other estimates remain the same, including the those for the cost of consumption mandates which make up the largest type of public support. "The conclusions and recommendations presented in the original report also remain unchanged", IISD stated in its Addendum. 

For a detailed explanation of this correction including all calculations in full, please see here