September 13, 2018

Prof. Gernot Klepper Ph.D., Kiel Institute for the World Economy

Bioenergy – and biofuels in particular – are intended to contribute to the transition towards renewable energy sources and to the mitigation of climate change through a reduction of Greenhouse Gases (GHGs). As such, they should themselves emit as few GHGs as possible. In order to demonstrate and to verify their contribution to the reduction of GHGs, the European Union requires a GHG assessment of all biofuels that are sold under the Renewable Energy Directive. It is by now common practice and works quite smoothly, namely to compute the GHG savings of each biofuel brought to the European market. Except for one aspect, the potential indirect land use change which is induced by the production of biofuels and now runs under the acronym “iLUC”.

iLUC is used by opponents of biofuel use as an argument to advocate a complete phase-out of crop-based biofuels, and it is seen by producers of crop-based biofuels as a threat to their investment in a sustainable biofuel production. The Council of the European Union1 in its proposal for the new Renewable Energy Directive (RED II) acknowledges the uncertainties surrounding a quantification of iLUC and has refrained from including an iLUC-factor in the GHG balance calculations. Thus, iLUC will not enter the GHG calculations of the RED II, but it remains in the debate and will be subject to further investigations. The question is, will it enter an amended RED II? And if so, what should be done about reducing ilUC without actually being able to measure it?

What is iLUC?

iLUC is relatively easy to understand and impossible to precisely quantify. So, let us go to the easy part:

The Council of the European Union rightly states: “Indirect land-use change occurs when the cultivation of crops for biofuels, bioliquids and biomass fuels displaces traditional production of crops for food and feed purposes. This additional demand may increase the pressure on land and can lead to the extension of agricultural land into areas with high carbon stock such as forests, wetlands and peat land causing additional greenhouse gas emissions.”2 The principal mechanism behind iLUC is an adjustment of prices to increased biofuel demand in global biomass markets. Increasing demand for biomass for energy purposes will need to come from land that is already cultivated or from land that is not appropriated by human activity. If this demand is met by expanding the agricultural area and by growing biofuel feedstocks there, we are talking about direct land use change (dLUC). If, however, biomass which has been grown for food and feed purposes on existing agricultural land is now diverted towards biofuels, then there is a supply shortage for food and feed on world markets. Rising prices as a response will create incentives to convert land to meet this demand. This conversion of natural areas is called iLUC.

Unfortunately, it is not easy or essentially impossible to determine who causes iLUC and to separate it from direct land use change (dLUC). This is only the theoretically pure adjustment process. In reality there are many other changes taking place simultaneously, that make the identification of the price effect even more complicated. Variation in supply, increasing demand due to population and income growth, productivity increases, and many more effects are taking place at the same time.

Let us do a thought experiment: Suppose all biodiesel in Europe is produced with rapeseed oil from Europe. Also suppose as a consequence, that the food and feed demand cannot be fulfilled in Europe and is met by land conversion to palm or soy plantations outside of Europe which then serve the European food and feed sector. This expansion would surely be counted as iLUC as usually defined and emphasized by the Council. But who would be charged with iLUC? Rape or palm producers? It should be rape and not palm or soy according to the Council’s definition.

Unfortunately, the Council is not consistent in its treatment of the iLUC issue. When it comes to controlling and reducing the risk of iLUC, it states and indirectly introduces a new definition of iLUC: “… high indirect land-use change risk biofuels, bioliquids and biomass fuels produced from feedstocks for which a significant expansion of the production into land with high carbon stock is observed.”3 This would put the “iLUC-blame” on palm instead of rape in our thought experiment. So, two competing definitions of iLUC lead to substantially different results for attributing iLUC to crops or regions.

The distinction between dLUC and iLUC is important as you will see in a moment. It is also important to recognize: dLUC is accounted for in the GHG accounting of certification procedures, iLUC is not. So the big question is: can one distinguish between dLUC and iLUC in order to quantify it? That is the question, nobody can answer precisely. Why is this so? All models looking at the dynamics of land use change induced by, e.g., biofuel mandates simulate the impact of higher prices due to these mandates on the additional land that has gone into cultivation. But the important point is, they cannot distinguish between new agricultural land that is used to bioenergy production and land that is devoted to food or feed production.

Yet, this makes a huge difference. If the additional land is used for bioenergy crops, it would be counted as dLUC and its GHG-impact is accounted for in the bioenergy product. In fact, dLUC is not present in biofuels that enter the European market since it would not pass the GHG threshold. If it is used for food and feed, it would be iLUC which is not taken into account in the GHG-balance. Since all models compute the total land use change from the biofuel mandate, they cannot separate out the iLUC part from the overall land use change. This total land use change is driven by many factors, not only biofuel mandates. Increasing food or feed demand due to higher incomes, higher prices for wood products that incentivize additional deforestation, lack or break-down of enforcement of land use regulation, or population pressure paired with a lack of income opportunities are just a few examples that could lead to additional land use change. These are fundamental impediments for computing the GHG-effect of iLUC, besides a large number of other more technical modeling problems.

Using these model results would attribute all observed land use change to biofuel policies and thus overstate the role of iLUC . So, evidence for iLUC is not so much based on model results but on observed historical evidence about land use change. It is simply assumed that in areas where there has been substantial land use change, it is likely that it will continue in the future and the preferred crop grown in the region is causing this land use change, even though other forces not related to biofuels may most likely have caused the deforestation. This is the logic of the Council’s definition of “high indirect land-use change risk biofuels”.

The areas which both experienced large deforestation in the past and produce significant amount of bioenergy crops are the Cerrado/Amazon region and the South East Asian rainforest areas. As a consequence and because nobody can exactly predict or determine where iLUC is taking place, the proposal is to denote all crops grown in these regions as high iLUC risk feedstocks. Ironically the same crops grown in regions not experiencing land use change would not be considered as risky, even though they supply the same markets. But this approach has nothing to do with the true causes of iLUC as shown above. The thought experiment about the use of European rape causing iLUC outside the EU makes this clear.

What can be done about iLUC?

iLUC exists, there is no doubt. But we do not know how big it actually is. So what are the options for dealing with iLUC? The causes for iLUC to happen are two-fold, as shown above: Firstly, prices for biomass need to increase sufficiently to create incentives for land conversion. Unfortunately, there are already many other incentives for deforestation and other land conversion, not necessarily related to biofuels. And secondly, the opportunities and cost of land conversion should be relatively low. In fact, if conversion of natural areas such as forests into agriculture is very easy, it will and actually is done for reasons other than agriculture as well. So, if prices do not increase by much and it is difficult to turn untouched land into plantations – especially forests with large carbon stocks and large biodiversity – then the risk of iLUC will be reduced. So, moving from a high-risk towards a low-risk iLUC biofuel can be achieved by limiting price effects and by better controlling land conversion.

The European Union has stated one possible solution, namely reducing those first generation biofuels which pose a high risk of iLUC. But it also offers to treat biofuels with low iLUC risk more favorably. So, what needs to be done to produce a low-risk biofuel feedstock and who needs to act? Producers have an incentive to increase production. If they concentrate on increasing yields instead of expanding area, they will be able to supply the market for feedstock without raising market prices and thus without creating incentives for others to convert forest or biodiversity rich grassland into agricultural land. This additional yield could go into biofuels without compromising food security. This process needs to be accompanied by regulation to limit the opportunities to destroy carbon stocks and biodiversity rich areas through deforestation. So both, production innovation and governmental land use control need to go hand in hand.

Who is called upon?

Much or even most of the current and past deforestation cannot be directly attributed to the expansion of biofuel production. It is caused by a combination of many factors such as population growth with increasing demand for food and feed, increasing land scarcity and many others. But it often also takes place due to a lack of governmental control of a country’s carbon stocks and its biodiversity. Regulating land use for the protection of a country’s natural resources and enforcing these regulations is and should be the task of each responsible government, regardless whether biofuels are produced or not. It would tremendously help to reduce iLUC risks but also the risks of any unsustainable direct land use change.

Concentrating on low iLUC risk biofuel feedstocks through improved land management and technologies is also in the interest of producers, as they can improve their GHG balance and the premiums accompanying them.

Concentrating on lowering iLUC risk promote bioenergy much better than trying to compute – most likely unsuccessfully – the amount of GHGs caused by iLUC. Such a focus could also begin to turn the debate on iLUC away from attributing past and current deforestation to the crops grown in those regions towards a discussion about how the real causes of iLUC can be reduced, namely through a climate and biodiversity friendly land use regulation and a more efficient agriculture. So, both producers and regulators should join to move towards low iLUC risk biofuels.

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1Council of the European Union: Interinstitutional File: 2016/0382 (COD), Brussels June 21. 2018.


3Pg. 110 ibd.