Britain’s biggest supermarket reveals it is rethinking its use of biofuels, due to their links to food-price hikes and environmental degradation.

Since 2005, Tesco has been selling biofuels in some of its petrol stations and using a 50:50 blend of biodiesel and conventional diesel in its haulage fleet. But the supermarket giant tells ClimateChangeCorp it is now “reviewing the emerging evidence” about the impact of biofuels on food prices and the environment and may change its policy.

Tesco is not the first major company to have qualms about biofuels. National Express hit the headlines last year when it said it could not justify a biodiesel trial given the questions raised about first-generation biofuels. Asda, Marks and Spencer have also expressed concerns, and a number of haulage firms, such as DHL, refuse to confirm that they will continue to trial biofuels.

How bad are biofuels?

A wealth of evidence exists regarding the impact of biofuels on food prices and its role in environmental degradation, though there is no real consensus about the extent of the problem.

According to the UN’s Food and Agricultural Organisation (FAO), food prices have risen 83% in the last three years. NGOs argue that biofuels have played a significant role in these prices hikes as food crops, such as wheat, are being processed into fuels and biofuel feedstocks are competing with food crops for land and water.

The FAO says that 10% of the 83% hike is due to increased demand for biofuel feedstocks, while one World Bank economist put the figure as high as 65%.

Scientific research cited by NGOs claim that the production of such first-generation feedstocks remove the carbon-sinking capacity of the vegetation they replace, cause long-term carbon releases from ploughing and erosion, and accelerate deforestation and habitat loss.

According to figures released by the UK government’s Renewable Fuels Agency, all of the biofuels being sold on petrol forecourts as part of the EU Renewable Transport Fuel Obligation (RTFO) – a mandatory mix of 2.5% , rising to 5% by 2010 – are from so-called first-generation feedstocks. Of the biofuels sold at the pumps in May and June this year, 34% came from Soy, 30% from sugar cane.

Oxfam has suggested the RTFO targets – and the £550m spent by the UK government on biofuel subsidies – have created an artificial market before the negative impacts have been understood. “If firms and investors want to be a part of a transition towards renewable energy … biofuels is not the best way to do it,” argues Oxfam’s Robert Bailey.

Firms back away

National Express and the Co-operative supermarket have made clear their opposition to biofuels. “We didn’t think we could justify a biofuels trial given these sustainability issues,” says Nick Coad, environment director of National Express.

Asda are also backing off from plans to use biofuels in haulage trucks. Marks & Spencer’s position is that they should be used in haulage trucks “when sustainable biofuels become available”.

Paul Johnson, biofuels expert at the Renewable Fuels Association, believes that some firms will avoid biofuels or use only fuels that meet strict standards, because not doing so may cause “damage to reputations”.

But though controversy may be scaring firms and investors away, Johnson argues that not all projects are the same. He says that 29% of biofuels being used for the RTFO meet the government’s “stringent” sustainability criteria.

Hopes for the future

Currently, however, biofuels are under no obligation to meet any sustainability criteria in order to count towards renewable fuels targets or be sold privately. But EU politicians are hammering out such criteria as a major part of the EU’s post-2010 renewable fuels policy.

As we report, a number of different benchmarks are now being developed. And with NGOs such as the WWF involved in many of the biofuel standards under consideration, it seems possible that a standard may emerge with the kind of endorsement needed to coax out businesses and investors.

Oxfam is still sceptical, however. It argues that the standards cannot account for indirect land-use change and the resulting food-price rises and emissions increases.

Nick Coad at National Express warns that any standards would need to be “robust and widely accepted”.

Many hopes rest on second-generation biofuels, due to become commercially viable in the next couple of years. Second-generation fuels promise to increase the amount of biofuel that can be produced sustainably by processing non-edible parts of crops and industry waste. But fuels from such feedstocks are not yet available.

The long-term demand for biofuels will be revealed when the EU and other governments begin to publish their next set of targets later this year. It seems likely that these targets will ensure demand for first generation biofuels continues.

Meanwhile campaigners say their opposition will remain steadfast as long as targets and subsidies precipitate land-use change and increases in the price of food. For companies wishing to make a decision about biofuels in the near future, there are no easy answers.