RECOMMENDATIONS FOR DECISION MAKERS (ABRIDGED VERSION OF CHAPTER 21)
Some governments have already enacted policies to support biofuels production, use, and increasingly, trade. While specific policy decisions will have to be made on a country (or regional) basis, according to unique natural resource and economic contexts, this chapter elaborates overarching recommendations to policy makers and describes a number of policy options that governments should consider enacting in order to advance sustainable biofuel development. These recommendations are drawn from experiences to date with biofuels, with other fuels, and with other renewable energy technologies, and are also based on the challenges that biofuels face today.
Developing the Biofuel Market
The most efficient way to hasten a rapid expansion of biofuel production is for governments to create a policy environment that is conducive to private sector investment in the development of these fuels. Policy makers should focus on creating a predictable and growing market for biofuels. In turn, this market will draw in the substantial capital, entrepreneurial creativity, and competitive spirit required to advance technologies, build production infrastructure, and achieve the learning and the economies of scale that are necessary to drive down costs.
Policy actions that governments can take right away, at no- or low-net cost, to help develop the market include:
Enact Tax Incentives. Tax incentives have been used effectively in Brazil, Germany, the United States and other countries to spur biofuel production and reduce biofuel prices at the pump. They can also be used to encourage certain types of biofuels development (i.e. small-scale, community oriented), and to speed the adoption of biofuel-compatible vehicles and other infrastructure. (Tax incentives for biofuels can be made revenue-neutral in a number of ways, for example, by increasing taxes on petroleum-based fuels. Governments that subsidize fossil fuels can save revenues and reduce the need to subsidize alternative fuels by reducing direct and indirect subsidies for the petroleum sector.)
Establish Mandates and Enforcement Mechanisms. Blending mandates create consistent and expanding markets which, in turn, attract private sector investment in technology advancement, infrastructure development, etc. Voluntary targets have been somewhat effective, but have not achieved the level of success provided by mandatory schemes coupled with credible enforcement mechanisms. Enforcement is important to ensure that targets are met. Mandates can be designed to steadily increase requirements for the share that must come from next-generation fuels. Mandates should also be tied to environmental and social standards (see below).