tax exemption for biofuels in germany: is bio-ethanol really an option for climate policy? jan...
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Tax Exemption for Biofuels in Germany:
Is Bio-Ethanol Really an Option for Climate Policy?
Jan Michael Henke, Gernot Klepper, Norbert Schmitz
International Energy Workshop24-26 June 2003, Laxenburg,
Austria
• In 2002 the German parliament decided to exempt all biofuels from the gasoline tax
• The European Commission as well declared its intention to promote biofuels
I. Introduction
Alleged positive effects on climate, agricultural and energy policy
We examine bio-ethanol as a substitute for normal fuels
II. Institutional and market conditions for the
production of bio-ethanol
• Tax exemption, agricultural and trade policy
issues
III. Can bio-ethanol contribute to energy and
climate policy goals?
• Evaluation based on
• energy balances, alternative land use
• greenhouse gas balances, CO2 abatement
costs
IV. Conclusions
Contents
1. Exemption from the gasoline tax
• Gasoline tax on normal fuels: 65.5 cent/liter
• Production costs of normal fuels: 20 cent/liter
• Production costs of bio-ethanol in Germany: 50
cent/liter
II. Institutional and market conditions for the production of bio-ethanol in
Germany
Price advantage for bio-ethanol: 35,5 cent/liter
Predicted tax loss: ca. 250 Mio. in 2005
• Market organization for sugar
• Set-aside premium
• In Germany: Market organization for
ethanol
• Reforms of the Common Agricultural
Policy
2. Agricultural policy issues
3. Trade policy issues
• Tariffs: currently up to 19.2 EUR/hectoliter
• No tariffs for ACP and other developing countries
• April 2003: regulation for European ethanol market: import licenses, tariff-quotas, emergency measures
• Possibilities for accession countries
Two premises must be fulfilled:
1. An increased use of bio-ethanol must lead to energy-savings and a reduction in GHG emissions
2. Abatement costs must not be greater than for alternative strategies
III. Can an increased use of bio-ethanol contribute to energy and climate policy
goals?
Analysis of available evidence for Germany
Net Energy Balance (NEB)• Compares the fossil energy input during the
production of bio-ethanol to the energy content of traditional fossil gasoline that is avoided due to the substitution by bio-ethanol (different calorific values are accounted for)
The first premise is tested with energy and GHG balances:
Net Greenhouse Gas Balance• Compares the GHG emissions during the
production of bio-ethanol to the emissions avoided due to the substitution of traditional fossil gasoline by bio-ethanol
• Estimate entire energy input and GHG emissions during complete production chain:
1. Input/emissions during agricultural production
• Crucial assumptions: fertilizer input, energy needed, yields/hectare, by-products
2. Input/emissions during conversion
• Crucial assumptions: plant-size, technological standard, type of energy input, by-products
• Ratio of substitution between bio-ethanol and gasoline
Computing energy and GHG balances for bio-ethanol
Figure 1: Net energy balance for the substitution of gasoline by bio-ethanol based on wheat
-15,00
-10,00
-5,00
0,00
5,00
10,00
1985 1990 1995 2000 2005 2010 2015year
Cre
dit
fo
r s
ub
sti
tute
d g
as
oli
ne
les
s t
he
re
qu
ire
d p
roc
es
s e
ne
rgy
Marr
ow
IEA
*
Ecotr
affic
CC
PC
S
ER
L
Austm
eyer
et al.
IEA
(pro
gnosis
)
CC
PC
S (
pro
gnosis
)
MJ/l
meó 2002
Figure 2: Net energy balance for the substitution of gasoline by bio-ethanol based on sugar beets
-15,00
-10,00
-5,00
0,00
5,00
10,00
15,00
1985 1990 1995 2000 2005 2010 2015
year
Cre
dit
fo
r su
bsti
tute
d g
aso
lin
ele
ss t
he r
equ
ired
pro
cess
en
erg
y
MJ/l
Ma
rro
Au
stm
eye
r e
t a
l.
ER
L
CC
PC
S
IEA
*
Su
ed
zuck
er/
Ste
ph
an
Su
ed
zuck
er/
Bue
rcky
IE
A (
pro
gn
ois
)
Ma
rrow
meó 2002
Results from the energy balances
Nevertheless energy savings are rather low
Other land use strategies allow for larger energy gains on a given amount of land
• Variation between different studies is bigger for sugar
beets
• Bio-ethanol based on sugar beets is more favorable
• IEA predicts larger savings
• Simulated positive/negative scenario
Strategies of Agricultural Land Use
0
50 000
100 000
150 000
200 000
250 000
energy gain
fossil input
Sugar beet Wheat Corn Rapeseed Wood
MJ/ha
For the production of:
Bio-ethanol
Electricity
RME
Figure 3: Net GHG balance in the production of bio-ethanol based on
wheat
-1 000
-500
0
500
1 000
1 500
2 000
2 500
3 000
3 500
1985 1990 1995 2000 2005 2010 2015year
red
uce
d C
02-e
mis
sio
ns
thro
ug
hsu
bst
itio
n l
ess
pro
cess
em
issi
on
s
Mar
row
IEA (prognosis)*
CC
CP
S (
prog
nosi
s)
IEA
*
Eco
traf
fic
CC
PC
S
ER
L
Aus
tmey
er e
t al.
kg CO2 eq./ha
meó 2002
Figure 4: Net GHG balance in the production of bio-ethanol based on
sugar beets
-4 000
-2 000
0
2 000
4 000
6 000
8 000
10 000
12 000
1985 1990 1995 2000 2005 2010 2015
year
red
uc
ed
C0
2-e
mis
sio
ns
th
rou
gh
su
bs
titi
on
le
ss
pro
ce
ss
em
iss
ion
s
CO2eq./ha
Marr
ow
Austm
eyer
et al.
ER
L
CC
PC
S
IEA
*
Suedzucker/
Ste
phan
Suedzucker/
Buerc
ky
IE
A
(pro
gnosis
) *
IFE
U (
ET
BE
)
meó 2002
Results from net GHG balances
• Bio-ethanol based on sugar beets is more favorable
• IEA predicts larger savings• Simulated positive/negative scenario
Nevertheless net GHG savings are rather low
CO2-abatement costs of the bio-ethanol and alternative
strategies• GHG emissions always have the same environmental
impact
Efficient climate policy requires reduction of emissions at sources with the lowest abatement costs
• Given the commitment in the Kyoto-Protocol, abatement costs in the EU vary around 30 €/ton CO2
Benchmark for the evaluation of the bio-ethanol strategy
Figure 5: Relationship between process costs and CO2 abatement for producing biofuels
-2 000
0
2 000
4 000
6 000
8 000
10 000
0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000
Excess Cost of Producing Biofuels (in EUR/ha)
CO
2 R
edu
ctio
ns
Rel
ativ
e to
Co
nve
nti
on
al E
ner
gy
So
urc
e
50 EUR / t CO2
400 EUR / t CO2
1000 EUR / t CO2
Wood/Electricity (IEA)
kg/ha
9
8
76
54
3
2
1
15
14
12
11
10
13
wheat sugar beets
Results for abatement costs
• Simulated best case scenario: at least 200 €/ton of CO2
• Abatement costs for bio-ethanol strategy are much
higher than for alternative strategies
• Possibilities to lower costs: use by-products, optimize
production processes, large-scale production
IV. Conclusions
However: • There are better options of agricultural land use• Expensive strategy with little effects
No economically viable option for climate policy
Justification with energy and agricultural policy objectives questionable
Analysis of the promotion of bio-ethanol in Germany from a climate policy point of view:
• Net energy balances have improved• Net greenhouse gas balances have improved
Thank you for your attention!
Questions: jm.henke@ifw-kiel.de
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