Stimulating the use of biofuels in the European Union : implications for climate change policy

The substitution of fossil fuels with biofuels has been proposed in the European Union (EU) as part of a strategy to mitigate greenhouse gas emissions from road transport, increase security of energy supply and support development of rural communities. In this paper, we examine this opportunity, by focusing on one of these purported benefits, the reduction in greenhouse gas emissions. The cost of subsidising the price difference between European biofuels and fossil fuels per tonne of CO2 emissions saved is estimated to be €174-269. Without including the benefits from increased security of energy supply and employment generation in rural areas, the current costs of implementing biofuel targets are high compared with other available CO2 mitigation strategies, including biofuel imports. The policy instrument of foregoing some or all of the excise and other duties now applicable on transport fuels in EU15, as well as the potential to import low cost alternatives, mainly from Brazil, are addressed in this context.