The Biofuel Directive Giving EU Oil Demand A Boost

ILUC is a little-known acronym that strikes fear into the heart of biofuels producers.

It stands for Indirect Land Use Change and describes a change in land use, for example in Brazil as a result of a change in land use somewhere else. In other words, if farmer 'A' moves into soybean for biodiesel production, farmer 'B' on a distant continent might cut down some virgin forest to take advantage of the slack left in the soybean-for-food market. Farmer A is held responsible, albeit indirectly.

Does that sound harsh? It is. It's near impossible to draw direct lines of causation between land use change in Europe and those on a different continent, but ILUC is nonetheless a logical extension from real situations in which measures to expand biofuel use, such as blending mandates, have resulted in environmentally bad outcomes, for example deforestation in Indonesia for palm oil production.

More importantly, the EU has gone to war on the issue, targeting food and feed crops used to produce biofuels, which it considers at high risk of ILUC. However, the new legislation -- designed to decarbonise transport - looks more likely to sustain conventional oil demand than reduce it.

RED II, the EU's new Renewable Energy Directive, will phase out biofuels made from high-risk ILUC food and feed crops entirely by December 2030.

By Ross McCracken from Oilprice.com
Image from unsplash.com
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