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Reviewing biofuel policies and subsidies
Annual report weighs opportunities and risks of biofuels
7 October 2008, Rome - Biofuel policies and subsidies should be urgently reviewed in order to preserve the goal of world food security, protect poor farmers, promote broad-based rural development and ensure environmental sustainability, FAO said today in a new edition of its annual flagship publication The State of Food and Agriculture (SOFA) 2008.

“Biofuels present both opportunities and risks. The outcome would depend on the specific context of the country and the policies adopted,” said FAO Director-General Jacques Diouf today. “Current policies tend to favour producers in some developed countries over producers in most developing countries. The challenge is to reduce or manage the risks while sharing the opportunities more widely.”

Biofuel production based on agricultural commodities increased more than threefold from 2000 to 2007, and now covers nearly two percent of the world’s consumption of transport fuels. The growth is expected to continue, but the contribution of liquid biofuels (mostly ethanol and biodiesel) to transport energy, and even more so, to global energy use will remain limited.

Despite the limited importance of liquid biofuels in terms of global energy supply, the demand for agricultural feedstocks (sugar, maize, oilseeds) for liquid biofuels will continue to grow over the next decade and perhaps beyond, putting upward pressure on food prices.

Opportunities for the poor

If developing countries can reap the benefits of biofuel production, and if those benefits reach the poor, higher demand for biofuels could contribute to rural development.

“Opportunities for developing countries to take advantage of biofuel demand would be greatly advanced by the removal of the agricultural and biofuel subsidies and trade barriers that create an artificial market and currently benefit producers in OECD countries at the expense of producers in developing countries,” Diouf said.

Other policy measures driving the rush to liquid biofuels, such as mandated blending of biofuels with fossil fuels, as well as tax incentives, have created an artificially rapid growth in biofuel production. These measures have high economic, social and environmental costs and should also be reviewed, according to the report.

Food security

Growing demand for biofuels and the resulting higher agricultural commodity prices offer important opportunities for some developing countries. Agriculture could become the growth engine for hunger reduction and poverty alleviation.

Production of biofuel feedstocks may create income and employment, if particularly poor small farmers receive support to expand their production and gain access to markets. Promoting smallholder participation in crop production, including for biofuel, requires investment in infrastructure, research, rural finance, market information and institutions and legal systems.

Among the risks, however, food security concerns loom large. High agricultural commodity prices are already having a negative impact on developing countries that are highly dependent on imports to meet their food requirements.

Particularly at risk are poor urban consumers and poor net food buyers in rural areas. Many of the world’s poor spend more than half of their incomes on food. “Decisions about biofuels should take into consideration the food security situation but also the availability of land and water,” Diouf said. “All efforts should aim at preserving the utmost goal of freeing humanity from the scourge of hunger,” he stressed.

Greenhouse gases

When looking at the environmental dimension, the balance is not always positive. “Expanded use and production of biofuels will not necessarily contribute as much to reducing greenhouse gas emissions as was previously assumed,” the report finds. While some biofuel feedstocks, such as sugar, can generate significantly lower greenhouse gas emissions, this is not the case for many other feedstocks.

The largest impact of biofuels on greenhouse gas emissions is determined by land-use change. “Changes in land use – for example deforestation to meet growing demand for agricultural products – are a great threat to land quality, biodiversity, and greenhouse gas emissions,” Diouf noted.

Sustainability criteria based on internationally agreed standards could help to improve the environmental footprint of biofuels, the report states, but they should not create new trade barriers for developing countries.

Second generation

The next generation of biofuels currently under development but not yet commercially available, using feedstocks such as wood, tall grasses, forestry and crop residues, could improve the fossil energy and greenhouse gas balance of biofuels.

“There seems to be a case for directing expenditures on biofuels more towards research and development, especially on second-generation technologies, which, if well designed and implemented, could hold more promise in terms of reductions in greenhouse gas emissions with less pressure on the natural resource base,” Diouf said.


Contact
Erwin Northoff
Media Relations, FAO
erwin.northoff@fao.org
(+39) 06 570 53105
(+39) 348 252 3616

Contact:

Erwin Northoff
Media Relations, FAO
erwin.northoff@fao.org
(+39) 06 570 53105
(+39) 348 252 3616

©FAO/Giuseppe Bizzarri

Sugar cane harvesting in Brazil.

Documents

Statement by FAO Director-General Jacques Diouf at the launch of SOFA 2008

Facts on biofuels

Worldwide, 52 billion litres (ltrs) of ethanol were produced for fuel in 2007, triple the level in 2000.

Most ethanol was produced in the US (27 billion ltrs) and Brazil (19 billion ltrs); the EU and China each produced 2 billion ltrs.

Around 10 billion ltrs of biodiesel were produced in 2007, up 11-fold since 2000. Most biodiesel was produced in the EU (6 billion ltrs) and the US (2 billion ltrs). Indonesia produced 0.4 billion ltrs and Malaysia 0.3 billion ltrs.

Global primary energy demand will remain overwhelmingly dominated by fossil fuels, with coal, oil and gas accounting for 82 percent in 2030 (currently 81 percent). Liquid biofuels are projected at 3-3.5 percent of global transport energy consumption in 2030.

Total support to biodiesel and ethanol in OECD countries in 2006 amounted to over $10 billion.

Second-generation biofuels from wood, grasses and other sources could reduce emissions by as much as 70-90 percent, but they are not yet commercially available.

Currently 22 countries are considered especially vulnerable due to high levels of chronic hunger and high dependency on fuel and cereal imports.

Audio

Listen to comments by FAO Director-General Jacques Diouf on the new SOFA report (mp3)

FAO analyst Keith Wiebe talks about the need to examine biofuel policies (mp3)

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Reviewing biofuel policies and subsidies
Annual report weighs opportunities and risks of biofuels
7 October 2008, Rome - Biofuel policies and subsidies should be urgently reviewed in order to preserve the goal of world food security, protect poor farmers, promote broad-based rural development and ensure environmental sustainability, FAO said today in a new edition of The State of Food and Agriculture.
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