Global Scenarios In Biofuels Production

The OECD has forecast rising prices for agricultural commodity prices, particularly vegetable oils (OECD, 2008). While the world financial crisis of 2008 will slow demand for commodities in the near future, world economic growth will in time regain its former momentum. Given constraints on domestic supply, a likely scenario is that much of the developed world's needs for vegetable oils for biodiesel and human consumption and for ethanol to replace petroleum fossil fuels will be outsourced. Production is likely to come from existing low-cost countries in south-east Asia and Brazil. The OECD (2008) expects palm oil production to increase by 40 percent by 2017, for example, and Brazilian sugarcane production to increase by 75 percent over the same period. This growth will entail the clearing of tropical forests and savannah lands unless drastic measures are taken to modify the economic drivers.

Three measures to avert accelerating deforestation present themselves: First is the regulation of land-use change. This has high political risks for governments in the countries concerned, and is unlikely.

Second is the payment of landholders for conserving carbon and preventing its release into the atmosphere. If the price of carbon is high enough, that is higher than present prices, then retaining the forests and savannahs becomes a viable option compared with conversion to croplands. Such an incentive scheme will be on the table for negotiation at the climate change conference in Copenhagen in late 2009. (The complexities of implementing such a scheme have been addressed in Chapters 1 and 2, and policy issues surrounding it are addressed in Chapter 8.)

Third is the removal of distorting subsidies by the US and the EU for biofuels and instead focusing on other measures to reduce dependency on liquid fuels, such as fuel efficiency. The mounting criticisms of subsidy policies have paralleled the growing body of evidence of their negative environmental and GHG consequences. However, the twin problems for governments are the limit to fuel efficiency gains in transport and the lack of alternative sources for liquid transport fuels, other than biomass.

A reduction in US and EU tariffs on biofuels, as advocated by the International Monetary Fund (2007), would need to be accompanied by a reduction in subsidies; otherwise an increase in land-use change would occur, particularly in Brazil and south-east Asia.

It is likely that domestic policy settings will prove to be flexible, given the dynamic nature of world commodity markets and the need to accommodate international agreements to control global greenhouse gas emissions.

Preferable to subsidizing biofuels or for that matter any alternative energy source is the adoption of a domestic policy that would put a price on all greenhouse gases. Such a policy is a comprehensive cap and trade scheme. Greenhouse gases involved in the production, processing and transport of fuels would be priced. The genuinely low emission alternative fuels and other energy sources emerge as the market performs its function.

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