Latvia: Biofuels – The Wrong Enemy

2022 - 09 - 02
Article by: Gatis Flinters, Mārtiņš Tarlaps

In March 2022, the European Commission announced that the blending proportion of biofuels, as applied by member states, may be reduced so that less agricultural land is used for the production of biofuel feedstocks. It was clear by then that Russia’s unprovoked war in Ukraine would put pressure on the food and feed commodities markets.

The Latvian government was quick to seize this opportunity to make the blending of biofuels voluntary. However, the optional character of this obligation is an illusion and the intended short-term gains from this shift in regulation could eventually lead to long-term problems.

First of all, the government’s proposal has nothing to do with easing pressure on food markets. Instead, the move is intended to reduce fuel prices at the pump. Indeed, blended fuel is more expensive. However, the current hike in fuel prices is due to high oil prices, and abandoning blending obligations will not fix this – biofuel makes up just 6% of the fuel price, compared to the approximately 40% related to fossil fuels and 53% related to taxes and duties. Actually, the latter would be an obvious tool for the government in adjusting fuel prices swiftly. However, the government has already stated that taxes and duties should remain intact.

Secondly, agricultural land use is mostly linked to first-generation biofuels. The advanced biofuels specifically promoted by the Renewable Energy Directive have significantly less effect on the food and feed commodities markets. Accordingly, a better-tailored approach could have been considered by the government, e.g., a reduction of the blending proportion at the cost of first-generation biofuels only. This would not only exclude unproportionate restrictions with respect to advanced biofuels having no impact on land use but would also allow maintaining at least partial greenhouse gas emission reductions under the Fuel Quality Directive.

Ignoring those considerations can potentially lead to an increase in fuel price at the pump, distorted competition, and even greater backwardness in reaching the binding targets set for Latvia by the Renewable Energy Directive and the Fuel Quality Directive.

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