The third iteration of the Renewable Energy Directive (REDIII) found its way onto the statute book last year, but the story doesn't end there; it's just the start of a new chapter. Member states now have until 21 May 2025 to implement the rules into national law.
Some changes – such as the sustainability criteria in Article 29 – are evolutionary, making it relatively straightforward to adjust national standards. Others, such as the new rules for certain biomass subsidies in Article 3, are considerably more complex. None more so than the requirements for member states to ensure "the application of the principle of the cascading use of biomass” when awarding biomass subsidies.
Academic literature on cascading is plentiful; however, suggestions on how to implement it in practice are rare. Examples of it being done are rarer still, save for a few failed (such as in Sweden) or troublesome (Belgium) attempts. This is in part because cascading is a nuanced and complex topic.
The cascading principle, as envisaged by REDIII, in its simplest terms, means using biomass for its 'highest value purpose.' The Directive prefers material uses of wood fiber and emphasizes minimising “undue distortive effects on the biomass raw material market” and Avoiding “distorting competition with the material sectors.”
Before member states dive into implementation, they should be cognisant of the fact that they are intervening in well-functioning markets that are already delivering on the desired policy outcome. As Hawkins Wright has noted, wood flows “have evolved over decades—in some cases over a century—into highly efficient market-based systems that allocate resources to the most appropriate end use.”
As a result, cascading is already deeply ingrained in many markets. In the US Southeast, for example, biomass subsidies in Europe have helped to mobilize unused and oversupplied wood fiber without interfering with non-energy uses.
This is well backed by evidence. Firstly, the sale value of high-quality fiber used for long-lived solid wood products is up to 4.6 times more expensive than the fiber used by the pellet industry. The forest owner would have no incentive to sell this material to a pellet mill. Secondly, the paying capacity of pellet producers in the US Southeast is the lowest in the market. Thirdly, low-grade fiber is available in large quantities in the US Southeast. This abundance is partly due to the decline in demand for pulpwood and composite products, which rely on similar feedstocks. Finally, and speaking to the heart of REDIII's cascading principle, there has been no distortion to the fiber price for the low-grade feedstocks that are, in part, used by the biomass industry.
Member states will need to take serious account of these economic factors when implementing the cascading rules in REDIII. In fact, when issuing guidance on cascading back in 2018 the EU Commission themselves stated: “A resource-efficient use of sustainably mobilized wood calls for a market-based approach. Market forces will normally determine the uses with the highest value”.
Implementation will be further complicated by the complexities that are inherent to the idea. Firstly, it requires subjective decision-making; the value of a product is going to vary from person to person (or institution to institution). Secondly, value is also likely to vary over time. A classic example from the fossil fuel industry is that petrol (gasoline) was initially an unwanted waste product but is now a core product for oil refineries. Fixed approaches to cascading can only ever be a snapshot of the prevailing view of value at one time. Thirdly, biomass is a global commodity, meaning cascading needs to reflect many different forest types and markets worldwide and thus will vary from sourcing region to sourcing region. It is a herculean task, intellectually and practically. Especially, as outlined above, the result could create an arduous bureaucratic burden that provides little-to-no additional benefit for forests or the climate. Intervention into markets always risks causing disruption, sometimes it is specifically designed to do that. However, when markets are functioning well and producing the targeted outcome, extra caution is needed.
About the author
Andrew Georgiou
Vice President, Global Policy, USIPA
Andrew Georgiou is Vice-President for Global Policy at the US Industrial Pellet Association (USIPA), a wood energy sector trade association representing members operating in all areas of the wood pellet export industry. With almost 15 years of experience working in politics and public policy he leads USIPA's engagement with policymakers across Europe, the US and Asia. He sits on the Board of Bioenergy Europe and takes part in a number of working groups on a broad range of biomass policy issues affecting markets across the globe.
