IPC urges EU/US to open markets for more efficient biofuels from the developing world - boost to 'Biopact'

Yet another major agriculture policy think tank has examined the effects of EU and US support for their own first-generation biofuels industries compared to more efficient alternatives from the South, and finds that the measures present major problems: domestic biofuels are not very energy efficient, they do not offer significant reductions in greenhouse gas emissions, they are not cost effective, they push up food prices and they are based on large amounts of subsidies and protectionist trade barriers.

The International Food & Agricultural Trade Policy Council (IPC) therefor urges both blocks to open their markets for biofuels from the developing world, where they can be produced far more efficiently, cost effectively and offer major opportunities for economic development and poverty alleviation. The IPC thus fully joins the case for a 'Biopact' - a vision now being supported by major energy policy think tanks, agriculture organisations and development economists.

The US and the EU are presently considering significant increases in their biofuels mandates in transportation fuel. IPC's report 'An Examination of U.S. and EU Government Support to Biofuels: Early Lessons' [*.pdf], finds that, in the absence of commercially viable second-generation biofuels, ambitious mandates coupled with high tariffs that serve to largely limit tax incentives to domestic producers risk a disproportionate focus on inefficient US and EU first-generation biofuels.

The report demonstrates that the lack of internationally agreed technical and sustainability standards, as well as a lack of clarity about international trade obligations, can increase this tendency. The report urges the U.S. and EU to adopt policies that serve to promote uses of biomass that are most energy-efficient and show the greatest promise of reducing greenhouse gas emissions, regardless of national origin.

The IPC's report says that, considering the comparative advantage of many developing countries in agriculture, increased US and EU openness to imports could provide economic growth opportunities for those countries with large production capacities. Developing countries can produce biofuels in a more efficient (table 1, click to enlarge) and more cost-effective (figure, click to enlarge) way.

Moreover, these biofuels reduce greenhouse gas emissions far more than fuels made from grains such as wheat and corn (figure 2, click to enlarge). What is more, both the EU and the US have limited land resources needed to expand production, whereas in the developing world there is vast unused potential.

To encourage the efficient production of biofuels from the most appropriate feedstocks, IPC’s report makes following recommendations and warnings:

EU and U.S. mandates, tax incentives, and tariffs:

• In the absence of viable second-generation biofuels, incentives, tariffs, and standards that are structured primarily to promote domestic production of certain biofuels will retard the procurement and development of other more energy — and cost-efficient — biofuels.
• Widening the access of imports to U.S. and EU domestic markets would help reduce upward pressure on commodity prices and lower the high costs of biofuels production, decreasing the risk of a backlash against government subsidies.
• Clarifying how WTO rules apply to the biofuels sector can pave the way for less distorted government support policies.

energy :: sustainability :: biomass :: bioenergy :: biofuels :: efficiency :: tariffs :: subsidies :: trade :: protectionism :: EU :: US ::

International standards are necessary to ensure that biofuels play a productive role in the push for renewable energy sources:

• Global sustainability standards can point the way towards optimal biofuels and feedstocks. The reduction of greenhouse gases should be the top priority.
• Without an international consensus on what constitutes sustainable biofuels production, environmental concerns can conveniently be used to cloak protectionist interests.
• Without widespread agreement on feedstock-neutral quality specifications, divergent technical standards can also be used for protectionist purposes.

The United States and the EU should consider the impact of their biofuels support policies on developing countries:

• Increased prices and new market opportunities will be welcome by developing countries with good production and export capacity. Rising food prices, however, hit net food importing developing countries especially hard.
• Considering the comparative advantage of many developing countries in agriculture, increased U.S. and EU openness to imports could provide economic growth opportunities for those countries with large production capacities.
• Other developing countries should be encouraged to explore the potential for domestic and small-scale biofuels production, which promises to be effective in the ongoing struggle for greater access to more sustainable energy sources and in the fight against poverty. As these countries do not have comparable means to subsidize their biofuels industry, the prospect of trade will facilitate investment.
• For international sustainability criteria to be effective, they must truly be global and incorporate the interests and concerns of developing countries. Given the possibility that these standards may limit economic growth in developing countries, care must be taken to help developing countries comply.

The costs, energy efficiencies, and net energy balances of biofuels vary widely, depending on the type of feedstock and production process used. Since the utilization of biofuels by the transport sector in the United States and the EU relies on government incentives, these policies should promote those biofuels that have an economic and environmental comparative advantage.

The political reality, however, is that domestic interests, largely agricultural ones, expect to be the primary beneficiaries of generous incentives to achieve ambitious biofuel production targets. Policymakers are not shy about this. They promote biofuels not only for their energy and environmental benefits, but also for their role in strengthening the market for domestically produced agricultural feedstocks.

This IPC’s examination of U.S. and EU incentives and tariffs demonstrates a high level of protectionism on both sides. Ultimately, the objective of promoting domestic production may undermine efforts to rapidly develop the most efficient, sustainable energy resources, it concludes.

The International Food & Agricultural Trade Policy Council promotes a more open and equitable global food system by pursuing pragmatic trade and development policies in food and agriculture to meet the world's growing needs. IPC convenes influential policymakers, agribusiness executives, farm leaders, and academics from developed and developing countries to clarify complex issues, build consensus, and advocate policies to decision-makers.

References:
Charlotte Hebebrand and Kara Laney, "An Examination of U.S. and EU Government Support to Biofuels: Early Lessons" [*.pdf], IPC Issue Brief 26, October 2007

IPC: U.S. and EU policies should expedite sustainable biofuels - October9, 2007.