Environmental and economic effects of policies to stimulate the demand for biokerosene in the Netherlands

The aviation sector is currently responsible for roughly 12% of global greenhouse gas emissions from transport. The strong growth of the aviation sector and the accompanying increase in emissions is difficult to align with the objectives to limit climate change, such as those set out in the Paris climate agreement.

Emission reductions increasingly difficult

The current international climate policy for the aviation sector mainly relies on reducing emissions in other sectors. More specifically, airlines need to offset a part of their emissions by buying so-called “offsets” from other sectors. The emissions in those other sectors should then be reduced by a quantity that is equal to the offsets that have been bought by the aviation sector. The rationale for this system is that it is cheaper to reduce the emissions in many other sectors than in the aviation sector itself. However, it is expected that in the long run it will become increasingly difficult to continue making use of emission reductions in other sectors. To begin with, the price of offsets will rise. In addition, in order to reach the objectives of agreements such as the Paris climate agreement, the emissions of all sectors must be reduced.

Biokerosine as an important measure

A potentially important measure to cut emissions in the aviation sector is to replace fossil fuels with biofuels (biokerosene). However, the price of bio-kerosene is two to three times higher than the price of fossil kerosene. Therefore, the use of bio-kerosene is currently minimal. Additional government policy is needed in order to stimulate the production of and demand for biokerosene. This research provides an overview of the types of policy measures the government can take to stimulate the demand and/or the supply of biokerosene in Netherlands. The direct and indirect effects of the policy measures on the aviation sector and the Dutch economy as a whole depend to a large extent on how the additional costs of biokerosene will be funded.

Wageningen develops policy measures

Wageningen Economic Research has been involved in evaluating the direct and indirect effects of policy measures to stimulate the use of bio-kerosene on gross domestic product, welfare, and trade balance as well as the sectoral effects on added value and employment. To this end, six scenario analyses were performed for the period up to 2030. The scenarios vary with regard to the production costs of biokerosene, the type of policy instrument, and the amount of biokerosene used.