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In response to the EU’s goal of lowering road transport carbon emissions, in 2008, the Spanish government set a target for petrol retailers to use a minimum of 1.9% biofuel in their products. The target was however, only voluntary and the impact minimal. To better fight pollution, in 2009, the targets were not only raised, but also became mandatory.

Furthermore, biofuels were also, in many cases, tax exempt.  Spanish domestic carbon emission policy was seemingly in line with the rest of the EU, and was making progress towards an overall goal of ‘delivering emission reductions of at least 35 per cent in relation to transport fossil fuels’ by 2016.

However, in the last few years, Spanish policy has begun to change. The tax exemption legislation was left to expire, without being renewed, leaving only the mandated minimum usage of biofuel percentages in place.

This immediately had an impact on biofuel consumption in the country. As the US Department of Agriculture’s ‘Biodiesel Standing report on Spain’ noted at the time, “Since January 2013 the legal incentive for biofuels consumption in Spain is only based in a consumption mandate, as the tax exemption for biofuels expired. The hydrocarbon tax reduction used to represent a higher incentive for blending since it amounted to 0.307 Euros/liter applicable to the share of biodiesel and the cost of the mandate breach prior to 2013 amounted to 0.276. However, according to Resolution by the Secretary of State dated July 8, 2013, since 2013 the mandate breach adds up to 0.602 Euros/liter. Consumption mandates were revised down at the beginning of 2013. The downward revision of consumption targets has contributed to the reduction of Spain’s biodiesel market size.”

Whilst many analysts understood how the need to increase government revenues had led to the tax exemptions being allowed to expire, the decision by the Spanish Ministry of Industry, Energy and Tourism for a downward revision of its mandatory consumption targets for biodiesel from 7 percent to 4.1 percent, seemed glaringly in opposition to EU policy.

The actual history of biofuel compulsory additives is shown here, using the Spanish government’s own figures.

The Ministry’s announcement included some reasoning behind the change in policy, stating that, “It is considered appropriate to revise the mandatory consumption targets for biofuels in 2013 and thereafter, setting targets that minimize the fuel prices and ensure some stability in the sector. These new goals will minimize the price of fuel and [provide] time [to] analyze technological developments necessary to achieve the [EU] targets for 2020 of 10 percent penetration of renewable energy in transport.”

Yet despite the desire to keep petrol costs low to aid the economy, the demand for biofuels soon fell further, such that by 2013 the consumption of biodiesel had fallen by 59% (to 550,000 tons), whilst bioethanol had dropped by 16% (to 330,000 tons). This was a return to levels not seen since 2008, as the government figures shown here indicate.

Whilst the Spanish government’s desire to aid the national economy with cheaper petrol pump prices is understandable, the fact remains that the policies put in place are not in line with other EU member states. Furthermore there is doubt as to whether the newly formed Spanish biofuel industry can withstand the lower mandates for use as additives.

Whilst some investors are already losing faith in the situation and closing bioethanol and biodiesel plants, other analysts believe that the condition of the economy as a whole is a priority. They also feel that a new industry should not be dependent on government tax exemptions or enforced usage of products by consumers to survive.

The impact of these policy changes is discussed further in the next part of this article.

There is no surprise in our need to discuss biofuels. As every year passes, they seem more and more important. In fact, the surprising thing is that we haven’t been discussing them for longer. The world has been in an energy crisis since the 1970’s, climate change brought on by our use of fossil fuels is now a largely accepted fact and the ever rising and falling price of oil is beginning to affect global economic growth.

As a result, governments the world over have been passing legislation to curb our oil and coal dependency. None more so than the EU, who in 2006 established an agreement to cut carbon emissions by 95% by the year 2050 (compared to 1990 levels). Further legislation was then passed by the EU commission and national governments to help reach this target…until now.

For recently, the Spanish government has decided to implement policies that put into question the region’s future relationship with biofuels. It further makes analysts question, how did legislation develop to where it is today, and where is the new legislation heading?

How did Spanish Biofuel Policy Develop?

With increasing industrialisation and the planet’s rising standard of living, the need for energy has risen. As a result, carbon dioxide emissions have gone through the roof, and more importantly into the atmosphere. Moreover, the advent of the global economy, where tomatoes from Israel are eaten in London, whilst Chilean wine is served on the dinner tables of Japan, has led to a massive increase in fuel consumption for transport. People and goods are spending more and more time on the road, and without the aid of an affordable and efficient electric car, that means carbon emissions.

According to Stephen Mulvey of the BBC, emissions from transport accounted for 21% of the EU’s total carbon emissions in 1990, and the proportion is growing. A 2012 report by the EU stated that transport accounted for 24% of all greenhouse gas emissions, of which 72% were from road transport.

Clearly, something needed to be done, so the European Strategy for Sustainable, Competitive and Secure Energy was born on the 8^th of March 2006. This included an agreement by member states to cut greenhouse gas emissions by at least 20% from all primary energy sources (compared to 1990 levels), as well as a minimum target of 10% for the use of biofuels. All of which was to be achieved by 2020.

The International Institute for Sustainable Development, report, ‘Biofuels – At What Cost?’ gives more detail to the legislation, when it explains that, “The two principal EU Directives for increasing biofuel usage … are the Renewable Energy Directive (RED) (European Commission, 2009a) and Fuel Quality Directive (FQD) (European Commission, 2009b). The RED requires member states to meet 10 per cent of their transport energy demand from renewable sources by 2020, and the FQD requires that member states reduce the emissions intensity of their transport fuels by at least 6 per cent by 2020. Both directives require that transport biofuels deliver emission reductions of at least 35 per cent in relation to transport fossil fuels. In 2017, this target increases to 50 per cent, and in 2018 it increases further to 60 per cent for new biofuel production refineries”

This gave many European countries, including Spain a problem, as most of Spain’s agricultural output is earmarked for food production, as the US Department of Agriculture’s ‘Biodiesel Standing report on Spain’ makes clear. “Spain’s biodiesel sector relies heavily on imports of raw materials. Domestic oilseed production includes olive oil and sunflower seed and both are primarily devoted to the food market. Area planted to soybeans or rapeseed is very small. This deficit in oil production is compensated by imports of oil or soybeans to be crushed domestically.”

By 2013, the dependency on imported feedstocks was creating a policy dilemma, as EU carbon emissions strategy was not only meant to reduce pollution, but was also intended to create jobs, specifically jobs for Europeans. But the competitive advantage of non-EU nations to produce biofuel feedstocks for export to the EU, and in particular Spain, was preventing the growth of the Spanish biofuels industry. Worse still, some feared that feedstocks prices were being driven down by the dumping of goods onto the market.

The EU funded ‘Biofuels Barometer’ explains further how this problem was resolved. It states that, “…the European Union decided to impose antidumping taxes on American bioethanol imports, levied at €62.9 per tonne for a 5-year period. Since this decision, a number of American producers found a way around having to pay these duties by routing their production via Norway, which in turn exported the biofuel to the European Union in the form of an ethanol-petrol blend. The European Renewable Ethanol Industry Association (ePURE) alerted the European Commission to this practice at the start of 2014, and on 4 June 2014 the Commission decided to apply the antidumping duties on all American bioethanol regardless of transit country.”

Jonathan Stearn of Bloomberg Business estimates that “The import taxes brought $1 billion a year of [US] trade to a halt.”

But America was not alone in the practice, with Indonesia and Argentina together importing up to 90% of Europe’s biofuel raw material. As a result, the EU decided to widen the import duties to include these two countries. As Stearn wrote in November 2013, “The European Union imposed five-year tariffs on biodiesel from Argentina and Indonesia, expanding renewable-energy trade barriers after similar EU import levies against the U.S.

The five-year duties were more than twice as high as provisional levies imposed. These anti-dumping duties [used] to curb competition for European biodiesel producers in their 12 billion-euro home market highlight tensions accompanying EU efforts to increase the use of biofuels.

Depending on the company, the five-year levies against Indonesia range from €76.94 a ton to €178.85 a ton. That compares to provisional duties from €24.99 a ton to €83.84 a ton. One Indonesian exporter, Ciliandra Perkasa PT, had a zero provisional duty rate and now faces a five-year levy of €76.94 a ton.”

Heavy import duties such as these have naturally had a devastating impact on the imports of biofuels and biofuel feedstocks, and have prompted a legal challenge from both Argentina and Indonesia. Meghan Sapp of Biofuels Digest outlined the case in June 2014, when she wrote, “In Switzerland, Indonesia has officially launched a complaint against the EU at the WTO over anti-dumping tariffs Europe has lodged against Indonesian biodiesel imports since May last year. The WTO established a dispute panel over similar changes made by Argentina already in April. Argentina argued that the anti-dumping tariffs have effectively closed off the European market to its biodiesel. The European and Argentine representatives to the WTO in Geneva are reportedly in contact in an attempt to resolve the trade dispute without the need for the panel or further interventions.”

Sapp suggests that maybe Spanish policy had triggered the complaint, writing that, “The Spanish government published the biodiesel supply quotas for the next two years, quotas that don’t include non-European producers despite the expectation that they must import according to WTO rules. Of the 42 installations that received quotas, 27 are Spanish, five are Italian, five are German, two are British, and one each from Lithuanian, the Netherlands and Portugal. There are seven Spanish producers who were not given quotas as well as six Argentine, four Indonesian, and two Malaysian.”

Being left off the quota list can close a business, and biofuels are big business. According to Reuters, Paulus Tjakrawan, chairman of the Indonesian Biofuel Producers Association (APROBI), stated that, “Biodiesel sales may jump to 3 million kilolitres this year, up from 1.006 million kilolitres last year.” But much of this is dependent on being added to the supply quota list. Indonesia’s exclusion, plus the added import duties are possibly illegal.

Meanwhile the EU is defending its decision. It’s ‘Biofuels Barometer’ stating that, “…the European Commission justified its decision on the grounds that the Argentine and Indonesian producers would have an unfair advantage because they had access to artificially low-priced raw materials in comparison to the world market price.”

The outcome is not yet known, as the report explains that, “The move is in the formal starting point for instituting arbitration proceedings under the auspices of the WTO.”

At least for now, the EU and Spanish government have every reason to be happy, as the tariffs are effectively defending the Spanish biofuels industry. As Argus, a UK based firm that specialises in fuel market analysis reported, “EU tariffs imposed on Argentinian and Indonesian imports have provided great impetus behind rising [Spanish biofuel] production: imports from the two countries had dropped to zero in the first five months of this year, from 177,000t and 64,000t, respectively, in 2013.”

How the markets and industries will respond when arbitration is complete remains unclear. But at present, the uncertainty in the situation cannot be good for investors, producers or traders.

Now, to confuse matters further, Spain has begun to remove various tax advantages for the use of biofuels in domestic petrol sales. Furthermore, they have lowered the mandated ratio of biofuel required as an additive for petrol. With ever changing policies in duties, legal challenges and now quota changes, the situation is far from clear.

Today, many in the biofuels industry are asking, ‘Where is Spanish Biofuel Policy Heading?’

There are three main areas that importers need to consider for trading in Africa.

Manufacturing  Industry
Large industrial companies and specialist manufacturers will often purchase their requirements directly from producers. This is especially the case for bulk users of raw materials.

Most industrial sectors in African countries are dominated by a few very large, diversified groups. These groups are significant end-users of raw materials and capital outputs.

Each group will have their own procurement systems to deal with imports and raw materials. This could be an in-house import department or the existence of an import company for the group that operates independently to supply the parent company and other customers.

Wholesalers
Often where there is no specialist importer or distributor for a specific product, you may need to sell to a wholesaler.  A wholesaler does not usually have exclusive selling rights, but still plays a very important role in the distribution system in African markets, in particular in supplying independent retailers and informal operators.

Retail Chains
Large retail stores often buy products directly from an overseas supplier. This is most often the case when there is an exclusive line of products, such as a particular range of linen, clothing or kitchenware.

Having outlined the three main access routes to African markets you might also like to consider the following tips;

• Being such a large continent, you may end up dealing with a smaller agent who operates only provincially. As they do not have the infrastructure or the capabilities to support operations in other provinces or countries, you may need to accept smaller trades from a variety of dealers before you can consolidate your business into more profitable quantities.

To begin with you might even find it useful to appoint an agent in each of the larger cities in order to cover all the major provinces. The larger companies who take on agencies will often have an office in each of the major cities in the region thereby making any agency agreement easier to control. For certain products and services, countries like Kenya, South Africa and the Ivory Coast are known as trading hubs for their respective regions. You might want to consider whether your agent should handle business for an entire region or whether he should concentrate on his country alone.

Understand the areas of need and high profit. Consult with the Chamber of Commerce or the relevant Embassy to establish what products are in greatest demand.

• Educate yourself about Africa from sources other than the Discovery Channel. Research the country and culture of where you want to trade with. Knowing the history and business environment of a place can give you an edge in closing a deal.

• Use a well established ratings agency to verify the trustworthiness and liquidity of any potential partner.

• Use an online marketplace such as Spotchemi.eu. Not only does this website enable you to trade in any chemical product, at anytime, but all its users are verified as credible partners, so you know that you are trading securely.

• Establish direct contacts with your business counterparts in Africa by participating in trade fairs and exhibitions, such as the AFRO-BUSINESS TRADE FAIR.

• Add your company to the advertising Section of the Africa Business Pages. The Advertising Section will carry a full-page editorial about your company as well as two pictures of your company’s products. In addition to this, your company will also be provided with a direct link in the Business Links section.

Overall it is advisable to heed the three Ps of African business; Pensiveness, patience, and perseverance. Pensiveness (caution) demands self control and the use of common sense. Whilst patience is necessary for a slightly bureaucratic continent that often moves as slowly as the local elephants. But you must persevere (continue working) with politeness, as the rewards are there to be taken.