European Union subsidy programs

The European Union (EU) has implemented a number of programs incentivizing the production of biorenewable energy, both on a Eurozone scale and a national scale by its member nations. The various programs are broadly split into the categories of biorenewable electricity and biofuels. The EU’s 2009 Renewables Directive (Anon., 2009a) creates two separate binding targets for member nations. First, EU members must derive 10% of their transport energy from renewable sources, including biomass, by 2020. Second, they must also derive 20% of all of their energy from renewable sources, including biomass, by 2020. Member nations are given the flexibility to determine how best to meet these targets. Additionally, the EU has established economic mechanisms to compensate participating facilities within member nations that contribute to reducing greenhouse gas emissions (GHG).

The EU has implemented an Emission Trading Scheme (ETS) to combat anthropogenic climate change resulting from GHG via a cap-and-trade mechanism. Installations located within a member nation that meet a net heat threshold are covered by the ETS. Each member nation receives annually a limited number of GHG emission allowances that are distributed to covered installations, which must in turn purchase additional allowances for any emissions that exceed this allocation.

The ETS affects biorefineries both directly and indirectly. It directly affects biorefineries by allowing them to receive offset credits in the form of emission reduction units (ERU). ERUs are awarded in exchange for activity that results in the avoidance of GHG emissions. Example projects include the production of biogas from landfills for use as fuel, the utilization of waste sawdust as electricity or biofuel feedstock, and the use of sunflower and canola oils as biodiesel fuel feedstocks (Fenhann, 2012). Each ERU represents 1 metric ton (MT) of avoided GHG emissions and can be traded with other parties. In this way, ERUs can directly contribute to the economic feasibility of a qualifying biorefinery by representing an additional value — added product.

The ETS indirectly affects biorefineries by artificially increasing the cost of fossil fuel products relative to renewable fuel products in proportion to their respective carbon footprints. Power plant operators must purchase sufficient carbon allowances to cover the plant’s GHG emissions, the size of which is determined by the feedstock utilized. This increases the value of electricity derived from biorenewables by lowering its cost relative to electricity derived from fossil fuels and thereby increasing demand for it. A similar situation exists for qualifying transportation biofuels. For example, the EU’s decision in 2012 to include airlines operating in Europe within the ETS (Torello et al, 2012) enhanced the value of aviation biofuel, as one method by which covered airlines can avoid GHG emissions (and the need to purchase additional allowances) is by combusting biofuel instead of conventional fossil fuel-based aviation fuel during flights.

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