The impact of the rebound effect of first generation biofuel use in the EU on greenhouse gas emissions 17 th ICABR Conference, 19 June 2013 Edward Smeets, Jamil Moorad, Andrzej Tabeau, Siemen van Berkum, Geert Woltjer, Hans van Meijl

 Increasing biofuel use in the EU to 5% in 2010  Driven by blend mandate 10% Biofuel use in the EU 27 Source: Eurobserv’er, 2012

Feedstock composition of biofuel use in the EU 27 & indirect effects Source: Eurobserv’er, 2012  Current biofuels made from food crops  Concerns about indirect effects: ● Food prices ● Indirect Land Use Change (ILUC)  Reduction of blend mandate to 5%  Increased stimulation of biofuels from residues and waste

The rebound effect of biofuel use  Change in biofuel use ≠ change in fossil fuel use  Crucial for both environmental impacts AND economic impacts of biofuel use; potential trade-off!  Also known as market leakage, indirect fuel use change, indirect output use change  Well studied issue in relation to energy efficiency, but only recently the rebound effects of biofuel use have received attention Objectives: 1) To evaluate the dynamics of the rebound effect of biofuel use based on a literature review and CGE modelling 2) To evaluate the impact of the rebound effect of GHG emissions

Conceptual representation of the rebound effect of biofuel use Source: Drabik and De Gorter, 2011

Simplified conceptual representation of the rebound effect of biofuel use  Distinction between rebound effect in biofuel consuming region (HOME) and ROW  A 20% rebound effect means that 1 J increase of biofuel changes fossil fuel use by 0.8 J  A -20% rebound effect means that 1 J increase of biofuel changes fossil fuel use by 1.2 J

Literature review & MAGNET CGE analysis  Nine studies: 5 US, 2 world and 2 EU  Range of -21% to +119% global rebound effect US world EU ROW HOME WORLD

Literature review  Negative rebound effects in the biofuel consuming region: biofuel consumption increase < fossil fuel consumption decrease  Positive rebound effect in the ROW: oil consumption increase  Net positive rebound effect globally  Key factors: ● Biofuel policy: mandate leads to lower rebound effects than biofuel subsidies ● Oil supply and the role of the Organization of the Petroleum Exporting Countries (OPEC): - Price maker - Target revenue - Green paradox

Evaluation of key factors Impact on rebound effect Elasticity of biofuel supply (increase) ↑ Elasticity of oil demand (increase; i.e. more negative) ↑ Elasticity of oil supply (increase) ↑↑ Elasticity of oil supply (compared to competitive oil market approach) OPEC Price Maker ↑↑ OPEC Target Revenue Theory ↑↑↑ Green Paradox theory ↑↑↑ Elasticity of substitution between biofuel and fossil fuel (increase) ↑ Biofuel policy (in case of uncompetitive biofuel industry or very low biofuel use) Biofuel mandate ↑↑ Biofuel credits ↑↑↑ Biofuel mandate and tax credits ↑↑ Carbon tax (compared to no tax) ↓↓ Source of financing of biofuel tax credits (compared to not considering) Income tax ↓ Agricultural subsidies ↓↓ Petrol tax ↓↓↓ Biofuel trade (compared to no considering of these effects) ↑↑ or ↓↓ Oil production costs and oil price (increase) ↓↓ Biofuel production costs and price (increase) ↓↓

Impact of rebound effect on GHG emissions of biofuel use (globally) +88% RE Upper range literature review +30% RE MIRAGE CGE model +22% RE MAGNET CGE model -1% RE Lower range literature review

Conclusions  Large range in estimates due to differences in approach, method, scenario assumptions, time fame, geographic scope and other parameters used in economic modelling.  Oil supply and role of OPEC is a key uncertain factor  Tax credits and other financial incentives for biofuel production and use results in higher rebound effects  Most studies indicate that rebound effect in the EU is negative and thus contributes to meeting EU GHG and energy security targets  ROW rebound effects are positive → negative impact on GHG emissions  Rebound effects are crucial for the efficiency and effectiveness of biofuel policies and for economic effects

Thank you for your attention! International Policy Division LEI – part of Wageningen UR Edward Smeets