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Biofuels Across the Atlantic

Posted by admin on January 22nd, 2007

IPC Chief Executive Charlotte Hebebrand has contributed the following piece about recent biofuel legislation on both sides of the Atlantic, and suggests that in the midst of promoting domestic biofuel production, we should not rule out future trade in the increasingly appealing commodity.

There is plenty of legislative movement on both sides of the Atlantic on the biofuels front: The 110th US Congress began work this month with a flurry of activity on the renewable energy front. Among the proposals is the suggestion to make tax incentives for biofuels production permanent. If passed, the 2010 and 2008 expiration dates for the 51 cent-per-gallon tax credit to ethanol and the $1 per-gallon tax credit to biodiesel, respectively, would be eliminated.

As part of its overall energy policy roll-out, the European Commission last week proposed to depart from its previous voluntary targets and set a binding minimum target for biofuels of 10% of transport petrol and diesel by the year 2020.

What these proposals indicate is that biofuels are thought to require long-term, even permanent government measures — be it in the form of tax incentives or targets — in order to reach a significant percentage of transport fuel. This raises two questions at IPC:

1. Is it smart policy to set up such long-term government support? A look at the agricultural sector on both sides of the Atlantic demonstrates how difficult it is to withdraw government support once it has been made available.

2. While the tax incentives and targets apply equally to domestically produced and imported biofuels, the fact is that other measures can in essence nullify the advantages for imports. In the US, it is also proposed to make the 54 cent per gallon import tariff on ethanol permanent. In the EU, it is possible that imports could be constrained by technical standards or sustainability import criteria.

While trade in biofuels is still minimal, it should not be ruled out, in particular since developing countries may well have comparative advantages in biofuels production: longer growing seasons, lower labor costs, and climates favorable to crops with high energy-conversion ratios. The Doha Development Round negotiations have amply demonstrated how difficult it is to address longstanding, distorting agricultural policies. In the excitement over the potential of biofuels to lower greenhouse gas emissions and to provide a new market for our farmers, we would do well not to erect another permanently subsidized and protectionist sector.

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