government support for biofuel

Global Government Support for Developing and Sustaining Biofuel Production

Biofuels are products that can be processed into liquid fuels for either transport or heating purposes. Bioethanol is produced from agricultural products including starchy and cereal crops such as sugarcane, corn, beets, wheat, and sorghum.

Biodiesel is made from oil- or tree-seeds such as rapeseed, sunflower, soya, palm, coconut or jatropha. World biofuel production is expected to quadruple to over 120,000 ML by 2020, accounting for about 6 percent and 3 percent of world motor petroleum use and total road energy use, respectively. This rapid growth and expansion in the biofuel industry is happening as a result of strong support and incentives from many governments around the globe. Some of the most effective and common of these government policies as well as future policy recommendations are discussed below.

Government support for biofuels

While biofuel technology has been in existence since the early 70′s, it is only in the last decade that countries have started to perceive biofuels as a viable alternative to oil, and have therefore begun investing in to biofuel research and increasing their production of biofuels with unprecedented speed. The key elements driving this new development are biofuels’ reduced carbon emissions compared to conventional fuels, their positive impacts on rural development, and the potential for countries to diversify energy sources, and enhance energy security. As a result of these perceived economic, environmental and social benefits, strong long-term government intervention is a feature in the two top biofuel-producing countries: the United States and Brazil, as well as the EU, China, and other countries. Governments aid biofuel ventures to overcome cost and scale disadvantages. Government support also helps biofuel companies weather the inherent volatility in profits.

One of the most commonly practiced policy interventions is a requirement to blend biofuel with its fossil fuel counterpart to provide a guaranteed market for biofuels. The specifics of this requirement vary around the globe in the extent to which this requirement is mandatory, whether a nationwide or regional strategy is used, length of the phase-in period, the volume or blend percentage mandated, etc.

Countries also rely on tax credits, subsidies, and preferential taxes to overcome the higher cost of biofuel production relative to gasoline and diesel, as well as to encourage consumers to buy biofuel-containing gasoline or diesel. For example, the US government provides a $.51 per gallon tax refund for blenders of ethanol and $1.00 per gallon for biodiesel from vegetable oils and animal fat ($.50 for recycled cooking oil or animal fat). Europe offers an 18.7-euro per acre energy premium for production of biofuel feed-stocks. Similarly, India’s government offers sugar mills, who are willing to build ethanol production facilities, sizable subsidized loans for 40 percent of project costs. Brazil encourages consumption by imposing a lower sales tax for hydrous ethanol (containing water) and E25 (25 percent ethanol) than for gasoline. Moreover, Brazil is the only country promoting biofuel use beyond minimal blending levels by allowing consumers to choose it as a fuel substitute. The Brazilian Government has promoted the availability of ethanol at almost every gasoline station and the manufacture of flexible fuel cars (capable of using pure gasoline, E25, or pure hydrous alcohol).

Many governments are also using import restrictions to promote the emerging biofuel industry. Effective tariffs range from 9 percent in Canada (for ethanol imports from Brazil, 0 tariff for renewable fuels from the U.S.) to about 45 percent for undenatured and 24 percent for denatured ethanol in the EU. The EU waives import duties and tariffs for many developing countries (not including Brazil). The U.S. tariff on ethanol is currently about 25 percent when the 2.5-percent tariff is combined with the $.54 per gallon duty.

Global concerns regarding biofuel production

While the current policies in place are helping to create a sustainable global market for biofuels, there are still many issues that governments need to address in order for the global community to reap the full economic, environmental and social benefits of biofuels. As more farms and forests around the globe are utilized for biofuels production, careful consideration of feedstock production practices and location of biomass conversion plants will be required to avoid devastating impacts on existing food, feed, and fiber markets, and the quality of natural resources upon which all of us depend on for clean air and water. Countries will need to invest into research and development of new technologies and alternative processes to improve economic and conversion efficiencies for biofuels production, improve current biofuel delivery programs and create trade policies and agreements that would allow developing countries to enter and compete in the biofuel global market.