EU Warns Brazil on Environmental Impact of Biofuels

July 5 (Bloomberg) -- The European Union said Brazil must protect farms and forests at home to pry open biofuel markets abroad, seeking to prevent a clean-air campaign from causing land damage.

Brazil, a pioneer in developing biofuels including ethanol, is counting on export growth as Europe, the U.S. and Asia try to reduce the use of higher-polluting oil. The EU wants biofuels, made from crops such as sugar and grain, to make up 10 percent of transport fuel by 2020 from a planned 5.75 percent in 2010.

"We can't allow the switch to biofuels to become an environmentally unsustainable stampede in the developing world," EU Trade Commissioner Peter Mandelson told a conference today in Brussels. "Europeans won't pay a premium for biofuels if the ethanol in their car is produced unsustainably by systematically burning fields after harvests. Or if it comes at the expense of rainforests."

Mandelson's remarks highlight the hurdles to expanding international biofuel trade and the risks of scaling back existing environmental rules in Brazil, the biggest producer of ethanol from sugar cane. Last month, billionaire George Soros, an investor in Brazil's ethanol industry, said environmental regulation in the South American country would prevent it from achieving a potential 10-fold increase in output.

Minimum Standards

The 27-nation EU plans to set minimum environmental standards for biofuels as part of draft legislation due later this year on achieving the bloc's 10 percent target, said Energy Commissioner Andris Piebalgs. Only biofuels that meet these norms would count toward the goal of increasing use of the alternative fuels and be eligible for tax breaks, he said.

"It is, of course, essential to ensure that this increase is fulfilled in a sustainable way," Piebalgs said. "We cannot just sit back and assume that this will happen automatically."

Brazilian President Luiz Inacio Lula da Silva demanded lower trade barriers for biofuels, which also include biodiesel, saying this step would reduce global pollution from greenhouse- gas emissions, strengthen energy supplies for rich countries and raise incomes in poor nations.

"The solution is in encouraging the establishment of an international market for ethanol and for biodiesel," Lula told the conference. "We cannot send out contradictory signals. The very governments who reiterate their commitment to sustainable development, to the reduction of greenhouse gases, cannot then turn around and create obstacles to turning biofuels into international commodities."

Conform to Standards

Lula said Brazil's biofuels would conform to environmental, social and labor standards through a national certification program. Jose Barroso, president of the European Commission, the EU's regulatory arm, said Europe's aim is to achieve "some convergence in terms of standards. This is important."

The EU warning about environmental protection also applies to developing countries such as Indonesia and Mozambique with the potential to play a bigger role in the worldwide biofuel market because of the size of their fertile land.

Petroleo Brasileiro SA, Brazil's state-controlled oil company, which made its first ethanol shipment to Japan last month, said developing nations need to protect the environment from biofuel production and Brazil's energy industry can cope with such rules.

Import Tariffs

"You have to regulate the way you increase areas to minimize the impact you have on food production and water use," Petrobras Chief Executive Officer Jose Sergio Gabrielli told reporters in Geneva. "We think we have the space to do that."

Global biofuel trade is already restricted by import tariffs in countries such as the U.S., the main ethanol producer and consumer along with Brazil. The U.S. government subsidizes ethanol production, which comes mainly from corn in the country, and wants the industry to start developing the fuel from other sources such as wood and grass.

Without these "second-generation" biofuels, farmers may focus on the energy market at the expense of food production. That risks creating food shortages and price rises. New biofuels also offer the prospect of being more environmentally friendly.

"There are legitimate worries about the demands that heavy biofuel production could itself put on the environment in terms of land and water use," Mandelson said. "That is why research and development is so important into second-generation biofuels that are cleaner, more versatile and can be used on more marginal land."

Framework Needed

Mandelson said an international environmental framework for biofuel trade would clear the way for greater EU imports because the bloc is "unlikely" to be able to meet its 10 percent target without an increase in shipments from overseas. He also urged the EU to avoid favoring domestic producers over foreign suppliers that have a lower cost base and make biofuels with lower emissions of carbon dioxide -- the main greenhouse gas -- over the life cycle.

"Europe should be open to accepting that we will import a large part of our biofuel resources," Mandelson said. "We cannot contemplate favoring EU production of biofuels with a weak carbon performance if we can import cheaper, cleaner biofuels. Resource nationalism doesn't serve us well."

EU biofuel production rose 60 percent to 3.9 million metric tons in 2005, according to the commission. Most EU biofuel production is from rapeseed.

The European Bioethanol Fuel Association, which represents producers such as Germany's CropEnergies AG and Spain's Abengoa SA, said the EU could meet its 10 percent consumption target without imports and called for a ceiling on foreign supplies.

Some non-governmental organizations including the Transnational Institute, a Netherlands-based group of activist scholars, and the World Rainforest Movement want the EU to ban biofuel imports and refrain from aiding European production of them, saying certification systems would probably fail to prevent environmental damage and food shortages from alternative-fuel output. The groups began a campaign late last month.

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net