DG TREN seeks Bilateral Biofuel Discussions in the U.S. EU

UNCLAS SECTION 01 OF 02 BRUSSELS 001517 FAS/OA MICHENER, FAS/OCRA/SNENON, FAS/OFSO/DYOUNG FAS/OGA RSCHWARTZ, ECARTER USTR/LYANG GENEVA FOR MIN COUNSELOR DMILLER BERLIN FOR AG COUNSELOR BRICHEY PARIS FOR AG COUNSELOR DBREHM ROME FOR AG COUNSELOR JDEVER THE HAGUE FOR AG COUNSELOR SHUETE WARSAW FOR AG ATTACHE EWENBERG MADRID FOR AG ATTACHE PTHURSLAND LONDON FOR AG COUNSELOR SMCSHERRY SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EAGR ENRG EUN SENV TPHY TRGY SUBJECT: DG TREN seeks Bilateral Biofuel Discussions in the U.S. EU Energy Council Ref: Brussels 936, 559, Brussels 2008 117 BRUSSELS 00001517 001.2 OF 002 ¶1. (SBU) Summary: In meetings October 15, 2009, Paul Hodson at the Energy and Transport Directorate General outlined his reasons for desiring bilateral discussions with the United States on what he called the technical aspects of biofuel legislation and which topics he thought the United States and the EU could most likely find convergence on. Once agreement between the EU and United States were reached, then the results would likely be accepted by other countries. The Brazilian Embassy expressed concerns that the goal of the EU is to build regional markets for biofuel, not world markets. Both he and the Brazilians expressed concerns about the end results of the negotiations under the Global Bioenergy Partnership. End summary. Potential Topics fr Discussion -------------- ¶2. (SBU) A visit on October 15, 2009 by FAS Senior Economist Ernest Carter provided an opportunity to meet with Paul Hodson, the Deputy Head for the Energy and Transport Directorate General's (DG TREN) Regulatory Policy and Promotion of Renewable Energy Unit. Mr. Hodson has been an advocate of bilateral discussions with United States on what he calls technical issues regarding biofuel legislation and is responsible for the EU Renewable Energy Directive. ¶3. (SBU) Mr. Hodson mentioned that he would like to see biofuel added to the topics for the U.S. EU Energy Council to facilitate bilateral discussions. He feels that discussions should start with technical issues because it will be easier to get convergence. He recommended that the discussions begin by comparing the progress in the United States and the EU to identify potential topics for consideration. Some of the topics he felt might show potential for convergence included: -- Data and methodology for calculating greenhouse gas emissions. Data sources would be a good area for discussion but methodology less so. Mr. Hodson expressed concerns that the United States moved too fast on developing solutions to the problems identified on greenhouse gas emission calculations. Some within the Commission like the U.S. approach, but the Commission has not reached agreement among the Directorate Generals. -- Voluntary schemes. EC is looking at voluntary schemes but he feels that if there could be convergence with the United States before the EU reaches a decision, then it would be easier to include the U.S. approach in the voluntary schemes accepted by the EU. -- Indirect land use change. The EU has identified partial and general equilibrium models from OECD and IFPRI that they published in a pre-consultation document. At this time, they have the option of accepting one of these or finding a new one. Neither of the two has been good for Brazil, but the IFPRI model may be able to leave room for an adjustment. -- Grassland biodiversity has not been defined yet but they hope to publish a definition in March 2010. -- Reporting by companies on 17 social and other environmental criteria, such as water use, pollution, and trade union recognition. They haven't decided how they will implement the reporting criteria required in legislation. Once a decision is reached, he did not know if they would publicly consult before publishing the decision. -- Baseline report. The data in the baseline report would be used for a report on the impact of Commission@ the world. -- Locala. They are consideringnvironmental issues to dl. ¶4. (SBU) He indis cut off levels, carboniversity criteria, and chaBT BRUSSELS 00001517 002.4 OF 002 not be included in the U.S. EU Energy Council discussions. Reasons for Bilateral Dialogue -------------- ¶5. (SBU) Mr. Hodson is facing challenges from internal and external sources. For example, he says DG TREN has not been able to get the data provided by U.S. industry from the Joint Research Center in a timely manner. He also expressed concerns that the numbers are coming from unofficial sources. In addition, the Environment Directorate General and DG TREN are having difficulty agreeing on methodology. They had hoped to reach consensus on a model for indirect land use change by the end of September 2009, but there is still no resolution. They are discussing increasing their meetings to twice a week. ¶6. (SBU) Mr. Hodson said that the EC is looking at becoming a member of GBEP because they believe this is where the discussions should start. However, he believes Brazil doesn't want to formally engage now because they want to reserve the right to go to the WTO. He sees value in bilateral discussions with the United States because if the EU and the United States find convergence on some issues, then he believes Brazil will likely go along with what is agreed. Brazil Mistrusts the EU, Too -------------- ¶7. (SBU) The mistrust appears to be mutual. During meetings the same day, Marcos Savini from the Brazilian Embassy expressed concerns that the goal of the EU is to build regional markets for biofuel, not world markets. He said that in Brazil, there is no link between sugar cane expansion, and therefore ethanol production, with deforestation. Ethanol production is largely for the domestic market; less than 10 percent is exported. He is concerned that even though there is no link between the expansion and deforestation, Brazilian exports could be disrupted because of the methodology the EU chooses. Though there could be issues with biodiesel exports, the Brazilian industry is not targeting export markets yet. ¶8. (SBU) Comment. Mr. Hodson is eager to engage in discussions with the United States but evidently has the impression that the United States does not want to engage. Hence, he seems to be talking to as many folks as he can from the U.S. government that will listen. He appears to be taking a long-term view, including preparing a potential EU negotiating position in the event that developing country biofuel exporters bring a complaint against the EU in the WTO. At this early stage, whether the United States sees value in engaging bilaterally may depend on how much the United States has in common with the EU position. However, the opportunity to influence EU legislation will be lost once all decisions have been made. End Comment. Murray