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Biofuels: EU and US battle to reach accords

HOW TO reconcile differing views on trade in biofuel feedstocks was high on the agenda of the first meeting of the EU-US Transatlantic Economic Council (TEC) in November. However, those expecting the meeting of politicians and experts from both sides of the Atlantic – a product of improved German-US relations since the election of Angela Merkel as Germany's leader – to produce guidance on the future shape of the industry must wait for a definitive series of agreements.

A "review of progress" issued after the meeting said only that the US and the European Commission, working with biofuels feedstock exporter Brazil, "made progress in identifying areas of convergence in international standards" for pure bioethanol and biodiesel, and that their experts had "reached preliminary agreement on the areas in which existing standards are compatible and are identifying areas in which progress can be made in 2008". An official at the Commission's mission to the US in Washington said no further details were available. However, a series of recommendations will be produced by year-end, according to the TEC review.

Driving the biofuels talks are regulatory grievances on both sides. EU biodiesel producers, for example, complain that subsidies for US manufacturers of soya-derived feedstock – as well as further tax assistance at the European end – make it difficult for them to compete. Some US producers say the EU's regulatory framework gives an unfair advantage to rapeseed as a feedstock; the EU – and Germany in particular – is a significant producer of this crop.

The harmonisation of technical standards for the use of bioethanol and biodiesel is another important issue. Agreement here could lead to the wider use of jatropha – a hardy, inedible crop best suited to growing on marginal land – as a feedstock. Some in the industry have heralded Jatropha as the answer to concerns over the displacement of food crops by biofuel crops, especially in developing countries. However, analysts point out that these are early days in the development of jatropha as a feedstock and that it is too early to gauge just how big a role it may play.

The EU-US talks come at a crucial juncture for the industry, as Europe steps up biofuel usage to meet EU requirements. A 2003 directive requires biofuels to comprise at least 5.75% of transport fuel – barring aviation fuel – in member states by 2010, rising to 10% by 2020. In mid-2007, biofuel usage across the EU amounted to around 3.5% of total transport fuel consumption.

A somewhat clearer picture emerged earlier in November on EU and US views on another issue of interest to the developing world – Brazil's efforts to have its biofuel exports classified as environmental goods at talks presaging a new round of World Trade Organization negotiations. If successful, the move would slash tariffs on Brazilian biofuels, giving the country an even bigger slice of the world market.

However, according to Associated Press reports from Geneva, both the US and EU delegates rejected the proposal at a closed-door meeting, claiming the environmental tariff rule applied only to industrial goods rather than agricultural goods and that biofuels fell under the latter category. Nonetheless, this is unlikely to be the last word on the issue, given that the US recently claimed, in a separate dispute with Brazil, that Washington's own payments to US bioethanol producers were not illegitimate farm subsidies, as Brazil was suggesting, but legitimate industrial-sector subsidies.

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