The EU has launched a new package of reforms aimed at reducing carbon dioxide emissions by 20% by 2020 (from 1990 levels). The reforms also propose that renewable energy should make up 20% of the energy mix and that biofuels should make up 10% of fuels used. Unsurprisingly, generators on the Continent are wary, and Czech power group CEZ has argued that the reforms could double power prices.

The new plans will run alongside the third phase of the EU Emissions Trading Scheme (2013-2020), under which the power sector will have to pay the full amount of the allocation permit package. One of the key highlights of the new EU proposals will be incentives for generators to invest in new-build carbon capture and storage facilities (CCS) onsite to boost efficiency.

One of the few certainties regarding these reforms is that cost pass-through to the end user will be instantaneous, adding to the misery of the many firms and households that are already facing ever increasing energy costs. The reforms could also lead to energy firms foregoing investments in alternative technologies, which could lead to a reduction in the associated environmental benefits.

Energy firms will have to assess the pros and cons of the EU’s plans, firstly assessing the costs needed to incorporate or upgrade to CCS technology at power stations (and then finding the means to fund the investment), and secondly assessing the sustainability of the supply chain of inputs needed to fulfill the 20% fuel mix target, for example the feasibility of a 10% biofuels target.

CEZ is analyzing the reforms’ impact upon valuing its generation business, as are equity analysts, who argue that the external financial implications have not been fully considered and will propel power prices. The subsequent impact upon the corporate model is also yet to be determined; however, with high capital (and sunk) costs, increased maintenance charges and the rising cost of capacity, the prospects look bleak. What is clear is that on the retail side of the equation the consumer will inevitably make up the shortfall.

The number of vehicles in the roads of the US today is staggering. And year after year, a huge number of these cars will be replaced by their owners. This means that the old vehicles will have to be disposed of.

Despite the problems faced by European biofuels producers, the EU should reach its biofuels targets.

Over the last 12 months, many European biofuels producers have faced bankruptcy as a result of rising costs and reduced subsidies. However, as imports from countries such as the US are taking the place of domestically produced biofuels, the failure of European companies will not affect member states’ ability to meet their targets.

In Europe, there has been substantial press commentary regarding the financial woes of European biofuel producers. Some analysts have even claimed that, as a result of supply issues, the EU risks missing its goal of replacing 10% of transportation fuel with non-fossil fuels by 2020.

It is true that European biofuels producers suffered a difficult year during 2007, largely as a result of increased costs. The principal factor behind the rising costs was the phasing out of tax breaks by many European governments.

Petrotec in Germany, which makes biodiesel from used cooking oil, saw its share price fall by 50% in the second half of 2007. In the UK, Biofuels Corporation also narrowly avoided bankruptcy after reaching a deal with Barclays Bank to swap a proportion of its debt for 94% equity in the company.

The financial difficulties faced by European biofuels producers have been compounded by the fact that US biodiesel producers receive a large tax credit from their government, which has recently been extended to 2010, thereby enabling US producers to undercut their European counterparts.

Furthermore, European leaders seem to be showing increasing acceptance of the fact that imports will make a significant contribution to Europe’s targets. In a recent speech, Peter Mandelson, one of the EU’s main trade negotiators, stated: “Europe should be open to accepting that we will import a large part of our biofuel resources.”

As a result of the increasing acceptance of biofuel imports, the problems being faced by European producers are unlikely to affect overall consumption and therefore Europe’s ability to meet its renewables targets. Furthermore, weak biofuels industries in France, Germany and Sweden have not prevented these countries from achieving their most recent biofuels targets.

In essence, while Europe’s biofuels industry has been adversely affected by the phasing out of subsidies, this should not prevent member states from meeting their renewables targets. This is especially the case as there appears to be increasing acceptance by political leaders that imports will make up a sizable proportion of the biofuels consumed in Europe.