EU MOVING QUICKLY FORWARD ON BIOFUELS; WINDOW FOR

UNCLAS SECTION 01 OF 03 BRUSSELS 001171

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TAGS: EAGR ENRG EU EUN SENV TPHY TRGY
SUBJECT: EU MOVING QUICKLY FORWARD ON BIOFUELS; WINDOW FOR
ENGAGEMENT LIMITED

REF: BRUSSELS 117


1. (SBU) Summary: The EU-is considering biofuels
sustainability and greenhouse gas reduction criteria that
could all but eliminate importation of U.S. and Brazilian
biofuels to Europe. Representatives from the European
Parliament, the Brazilian Mission to the EU, and industry
have all stressed to USEU the importance of U.S. involvement
in the EU's regulatory process on the biofuels sustainability
issue to ensure the U.S. and EU do not proceed on divergent
paths. The French Presidency is pushing to complete the
Climate and Energy package by the end of 2008, providing only
six months for us to influence the outcome of this debate.
The U.S. and EU have already had one DVC on biofuels
sustainability criteria; USEU recommends we use Europe's
August recess to plan how we can substantially step up the
pace of our engagement, including by placing the issue on the
agenda of the Fall Transatlantic Economic Council meeting.
The Parliament and member states remain somewhat divided, so
the opportunity still exists to engage and influence the EU
through a combination of tripartite (with Brazil) and
bilateral forums. End summary.

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Industry Concerned with Path EU is Taking
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2. (SBU) U.S. and European industry representatives have told
USEU officials they are concerned that the rapid movement of
the EU's proposed Renewables Directive (reftel),notably the
biofuels aspect, has the potential to create substantial
trade barriers between the U.S., EU, and Brazil. Unlike the
U.S. Energy Independence and Security Act (EISA),which they
said sent a strong signal to industry that the U.S. was
prepared to support biofuels development, the biofuels
paragraphs of the Renewables Directive do not provide many
incentives for commercial development in Europe.


3. (SBU) Furthermore, industry officials believe that the
proposed sustainability and greenhouse gas (GHG) reduction
criteria could all but eliminate importation of U.S. and
Brazilian biofuels to Europe. For U.S. biofuels, this is due
primarily to the minimum life-cycle GHG savings requirements
of biofuels over fossil petrol and diesel. Under the existing
proposals, corn-based ethanol is not guaranteed to meet the
EU proposed minimum 35% GHG savings, a number which could be
increased to as high as 50% initially. By comparison, the
U.S. Energy Independence and Security Act (EISA) dictates a
minimum 20% savings for corn-based ethanol. For Brazilian
sugar cane ethanol, which can have over an 80% savings, the
GHG threshold is not a concern, but the proposed
sustainability requirements could lead to problems. The EU,
specifically through the Parliament, is looking to enforce
strict biodiversity standards that could eliminate many fuels
from new Brazilian sugar cane fields.


4. (SBU) Even if certain biofuels do not meet EU standards,
they still can be imported into Europe. However, they will
not count toward EU biofuels or renewable energy targets,
thereby providing a large disincentive to their use. In
addition, at least one other proposal suggests that biofuels
that do not meet EU standards count against GHG emissions for
the importing country.

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European Parliament Still Divided, but Moving Toward Accord
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5. (SBU) The European Parliament remains divided on the final
form they would like the biofuels portion of the Renewables
Directive to take. The consensus seems to be to back off
from the Commission's proposed 10% share of alternative fuels
in transport by 2020, but it is unclear how far. The
strongest push seems to be moving toward a 4% share in 2015,
of which 20% would be from fuels other than first generation
biofuels, with a Commission review at that point of the state
of technology. The review would then advise the EU as to the
next step, which could mean 8-10% in 2020, of which 40% would
come from non-first generation biofuels. However, none of
this is set, and the Commission will continue to press for
10%, as they claim anything less would encourage European

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industry to back away from biofuels.

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Member States Generally in Agreement, but Details Unresolved
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6. (SBU) Generally, it appears many Member States support
amending the Commission proposal to change the biofuels
targets and criteria, though there remain divisions over some
of the details. The majority of countries agree with the
proposal that would initially require biofuels to deliver a
35% life-cycle greenhouse gas savings over fossil fuels, with
this threshold increasing to 50% in 2015. However, Denmark,
the Netherlands, and the UK consider these targets to be too
low (and in many cases their MEPs have expressed similar
views); whereas Spain and Romania see the values as too high
and France, Latvia, Hungary, and Poland wish to push the
increase to 50% to 2018. (Note: This idea to have a stepwise
increase appears to derive from EISA . MEPs, in particular,
have referenced EISA when discussing the GHG savings
thresholds. Under EISA, GHG savings are divided by
technology, with 1st generation biofuels requiring a 20%
savings, 2nd generation a 50% savings, and cellulosic
biofuels a 60% savings. End note.)


7. (SBU) In particular France, the current Presidency of the
EU, has begun to make stronger statements in recent weeks
calling for increased focus on sustainability and social
criteria for imports from non-EU countries. Specifically,
France has reinvigorated discussion requiring third countries
to have ratified several treaties, the Kyoto Climate Change
Protocol among them, for those biofuels to count toward the
EU targets. The Commission has fought strongly against these
proposals, claiming they would conflict with WTO rules.
Currently, the proposal simply states that the Commission
will review every two years how biofuels producing countries
stand on various social criteria, and then make
recommendations as to how the EU should proceed.


8. (SBU) Germany, on the other hand, has been blamed by both
MEPs and Commission officials for inhibiting the process.
MEP Anders Wijkman, Rapporteur for the Renewables Directive
in Parliament's Environment Committee (ENVI),explained that
in his opinion, Germany "does not believe in climate change,"
instead arguing that climate change policies are going to
adversely affect economic growth. An official from DG-TREN
echoed this sentiment, detailing his belief that the German
members of the European People's Party-European Democrats
(EPP-ED),the largest political party in the Parliament, have
been working to derail the negotiations to try to push back
the timeline.

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Brazil Leading Developing Country Opposition, Looking to U.S.
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9. (SBU) Brazil is very concerned with the direction EU
legislation is moving, afraid that sustainability and social
criteria will put a halt to Brazilian ethanol imports into
Europe. Brazil's concerns do not stem from the GHG savings
threshold-Brazilian sugar cane ethanol currently offers
approximately an 80% GHG savings over fossil fuels-but more
from questions over deforestation and labor situations in
supplying countries. Brazil, supported by Argentina,
Indonesia, Malawi, Malaysia, Mozambique, and South Africa,
sent a letter to MEPs calling for maintaining the 10% target
as well as using science-based approaches to develop criteria
related to sustainability, biodiversity, and indirect land
use change.

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Support for U.S.-EU-Brazil Tripartite Discussions
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10. (SBU) Industry, Parliament, and Brazil have recommended
to USEU that the USG initiate a tripartite U.S.-EU-Brazil
discussion to discuss sustainability requirements,
methodologies, and the path forward, an approach that we have
successfully used to work toward compatible biofuels
standards (on which the three released a white paper last
January). We have already begun a bilateral conversation on

BRUSSELS 00001171 003 OF 003


sustainability methodologies with the EU with a successful
DVC in the spring, which included all relevant Commission DGs
and EPA, DOE, USDA, State, and others from the U.S. side.
The EU participants appreciated the effort and have asked to
continue the discussion.


11. (SBU) MEP Wijkman believes there needs to be close
trans-Atlantic cooperation on biofuels. He is concerned the
U.S. has not been as engaged as it should be in the European
discussion on these issues. The Commission is also very
interested in close cooperation. It supports the concept of
tripartite discussions, but has explained that the current
timeline prevents it from starting the effort itself.
Instead, a DG TREN official explained that if the U.S. or
Brazil were to start the conversation, the Commission would
very happily come to the table.

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TEC as a Potential Forum for Discussion
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12. (SBU) Comment: The EU lags the U.S. in developing
scientific methodologies for determining biofuels greenhouse
gas savings and "sustainability/land use" criteria. This,
combined with the pressure France is applying to complete the
legislative process by the end of the year, increases the
chance the EU will regulate by sentiment rather than science.
Parliament, in particular, appears to be relying on the work
done by Tim Searchinger, which has been criticized by
scientists from both sides of the Atlantic.


13. (SBU) USEU believes the USG must significantly step up
our engagement with Brussels on biofuels sustainability
criteria to ensure we adopt compatible standards. This issue
was discussed in the April U.S.-EU High level Regulatory
Cooperation Forum, and we have had the DVC, but have no
concrete plans for additional follow-up, including with the
European Parliament. We recommend the interagency use the
August lull to discuss possible next steps. These could
include working now to schedule a follow-up DVC in
mid-September (with an eye to additional DVCs, as necessary);
a subsequent demarche to EU member states; visits in
September and October by ranking Administration officials to
discuss the issue with the European Parliament and member
state representatives; and placing the issue on the agenda of
the October Transatlantic Economic Council meeting. We
should also consider using the tripartite format to buttress
these bilateral efforts, and we will in any event want to
develop a caucus of third countries we should work with to
influence the policy deliberations in Brussels. USEU is
willing to assist in whatever ways necessary. End Comment.

SILVERBERG
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