March 2015
ILUC must comply with Better Regulation and respect the Rule of Law
Arizona Chemical, Forchem and Respol Resinas welcome the efforts made by the Council and the
Parliament to find a common position on the Commission’s proposal for the ILUC Directive, which is of
great importance to a wide range of bio-based industries, including highly innovative and competitive
green bio-based chemical companies like ours. However, we are seriously concerned that the Parliament’s
earlier recognition of the equal importance of the green bio-based chemical industry, next to the biofuel
industry, is no longer reflected in the text. Since biofuel policy has strong effects on other bio-based
industries of equal importance to the objectives which the ILUC Directive seeks achieve, it is crucial that
the Directive does not undermine other existing, innovative and non-State aided successful bio-based
industries.
The Council’s and the Parliament’s second reading position on the ILUC Directive is of great concern to us.
By maintaining a reference to the scarce raw material, tall oil (Crude Tall Oil (CTO)), in Annex IX and by
introducing a Grandfathering Provision that does not only protect existing investments before a certain
cut-off date, but also legalise and hence protects incorrect and unlawful classifications by Member States
of certain raw materials, the ILUC Directive will immediately put European producers of bio-based
chemicals in a severely disadvantageous position on the market.
A. The draft Directive disregards existing EU legislation and the Rule of Law
In order to maintain a level playing field where bio-based industries can buy and use scarce materials,
such as tall oil, on commercial and competitive terms, the ILUC Directive must ensure legally correct
classifications of materials that a wide range of bio-based companies use and compete for. In order for
the ILUC Directive to comply with the EU’s Commitment for Better Regulation and respect of the Rule of
Law, the Directive must respect existing criteria and methodology established by the EU Court of Justice in
its generally applicable and binding case law for the classification of substances and materials. It follows
from that case law, that tall oil is a product and, not a residue. The fact that tall oil is registered under the
REACH Regulation further confirms that tall oil is not a waste or a residue, but indeed a product.1 In order
for the ILUC Directive, and its Annex IX, to comply with Better Regulation and the Rule of Law, it must
also be coherent with other existing EU Directives and Regulations from which it follows that tall oil is a
product. The importance of the coherence between the objectives of the Renewable Energy Directive
(RED) and other EU legislation is explicitly emphasized in the RED as well as in the ILUC Directive,
underlining the need to improve legal certainty.2
Tall oil must consequently not be referred to as a residue in the ILUC Directive and its Annex IX.A
reference to tall oil in Annex IX, or elsewhere in the ILUC Directive, as well as a Grandfathering Provision
that legalises incorrect and unlawful classifications of materials, are examples of poor EU legislation in
1
REACH Regulation (EC) No 1907/2006, and in particular Article 2(2).
See Recital 44 of the RED and Recital 7(b) of the ILUC Directive (the European Parliament’s second reading position, ENVI
Committee)
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conflict with the European Union’s commitment to adopt Better Regulation for its citizens and to respect
the Rule of Law.3
B. Tall oil should be removed from Annex IX
The EU Court of Justice has in its case law established criteria with a generally applicable methodology,
through which an autonomous and uniform interpretation of “wastes”, “residues” and “products” can be
guaranteed in all Member States. This methodology, which is based on legally binding criteria, should be
taken into account and respected by the Council and Parliament, as EU’s co-legislators, when deciding
whether a material is a residue or not and, consequently, whether a material belongs in Annex IX or not.4
In other words, for the ILUC Directive to comply with Better Regulation and the Rule of Law, each and
every material to be included in Annex IX should be subject to a test that includes criteria which in
practice corresponds to those established in the case law of the EU Court of Justice5 in order to decide
whether the material is a waste, a residue or a product.
The ILUC Directive introduces, in Article 3(5), second paragraph, of the RED, a test setting out criteria on
the basis of which the Commission may, through delegated acts, add new feedstocks to Annex IX. This
test includes criteria that correspond to the methodology established by the Court of Justice. However, as
it stands, the test is only applicable when new feedstocks are to be added to the list in Annex IX. It is not
applicable to feedstocks proposed to be included already from the outset, i.e. when the ILUC Directive is
adopted. In line with the Commission’s commitment to deliver Better Regulation and to ensure the
respect of the principle of the Rule of Law, the criteria for adding feedstocks to the list in Annex IX must
not only be applied to new feedstocks, but also to feedstocks suggested to be included in the list already
from the outset.
The Commission has already examined the status of tall oil, on the basis of existing EU law, and has
concluded that tall oil is a product. Materials that are wastes, and residues, cannot be registered under
the REACH Regulation. Companies that register a substance/material under REACH thus agree that the
material in question is neither a waste nor a residue.6 Consequently, as mentioned above, the fact that
tall oil is registered under REACH therefore further confirms that tall oil is not a waste, nor a residue, but
indeed a product.
It would consequently be legally incorrect and contrary to Better Regulation and the principle of the
Rule of Law to keep tall oil in Annex IX and/or to refer to tall oil as a residue in any other part of the ILUC
Directive.
By removing tall oil from Annex IX, the EU legislator will ensure that all existing and new uses of tall oil
will have equal access to that scarse material on commercial and competitive terms and that no single
3
Political Guidelines for the next European Commission: http://ec.europa.eu/priorities/docs/pg_en.pdf
See e.g. Case C-235/02 Saetti and Frediani [2004] ECR I-1005, paragraphs 34, 45 and 47, and Case C-188/07 Commune de
Mesquer [2008] ECR I-4501, paragraph 42ff.
5 For the methodology used by the EU Court of Justice see the Flowchart for the Classification of Materials on last page of
this document.
6 For information on companies that have registered CTO under REACH, please see
http://apps.echa.europa.eu/registered/data/dossiers/DISS-9ff1672d-d1f3-6f1e-e044-00144f67d031/DISS-9ff1672d-d1f36f1e-e044-00144f67d031_DISS-9ff1672d-d1f3-6f1e-e044-00144f67d031.html
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actor or sector will be favored. The biofuel sector would still be able to continue to buy and use tall oil for
their production, just as today. However, biofuel production from tall oil would have to comply with the
relevant sustainability criteria, since tall oil is not a residue, but a product according to existing EU law.
C. The Grandfathering Provision should be removed
Even though we understand the wish of protecting investments, a Grandfathering Provision must only
protect investments already made before the cut off date (31.12.2014). It is essential that a
Grandfathering Provision does not protect Member States’ incorrect and unlawful classifications of
materials.
If the Council’s wording on the Grandfathering Provision is approved, it would not only protect
investments made before the cut-off date (31.12.2014), but would also protect and have the effect of
retroactively legalising incorrect and unlawful classifications of materials in certain Member States. This
would open the backdoor for Member States to support the production of biofuel from tall oil, which is
incorrectly and unlawfully classified as a residue in Sweden and Finland, when also produced in new
installations (new investments), made after the cut-off date (31.12.2014).
The first and preferred option would therefore be to remove the Grandfathering Provision from the
ILUC Directive. If that, however, is not possible we support a wording stating that only investments
already made should be protected.
D. Delegated Acts for adding as well as removing materials
In order to achieve legal consistency and to ensure that the ILUC Directive reflects the latest technical
development and scientific progress in the market, the Commission must be empowered to adopt
delegated acts not only to add materials, but also to remove materials from Annex IX.
E. Support a Level playing field, Waste Hierarchy and Cascading Use
It is essential that the ILUC Directive do not create additional significant distortive effects on the market
for materials that constitute products. Materials which already are in existing use with economic, social
and environmental value, such as tall oil, should not be artificially incentivized for a specific use in one
sector of bio-economy, such as biofuel production.
Production of biofuels and bioliquids must respect EU legislation for classification of materials. In this
regard, the waste hierarchy and the principle of cascading use should equally be taken into account and
respected in biofuel production.
By comparing the carbon footprint of European tall oil based biodiesel to those of pine chemicals derived
from tall oil in Europe it can be concluded that there is no net gain for the environment, the EU economy
or the EU citizen to adopt an ILUC Directive that would drive a scarce material, such as tall oil, away from
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existing uses of tall oil in the bio-economy to one specific use of that material. 7 By legalizing incorrect and
unlawful classifications of tall oil as a residue this would create additional incentives, on top of the existing
ones, that already and significantly promote the use of tall oil for state aided biofuel production.8 It would
be a very expensive zero-sum game that will pull away tall oil from economically sound, innovative and
competitive bio-based business in Europe. The ILUC Directive should be neutral towards all bio-based
companies using tall oil as a raw material, so that market mechanism can continue to decide where tall
oil is best used.
Furthermore, it will be important for the Commission to carry out an analysis to evaluate the impacts of
the implementation of the ILUC Directive on the chemical sector as well as in related industries.
7
Greenhouse Gas and Energy Life Cycle Assessment of Pine Chemicals derived from Crude Tall Oil and their Substitutes.
Franklin Associates 2013.
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