UNCTAD Intergovernmental Expert Meeting on BioFuels, 30 November 2006, Geneva

As part of the UNCTAD intergovernmental Expert Meeting on the "Participation of Developing Countries in New Dynamic Sectors of World Trade: Review of the Energy Sector" held on 29-30 November and 1 December 2006 at Palais des Nations, Geneva, a full day was dedicated to biofuels on 30 November 2006. The session will address the following issues:
1) trade, development and regulatory aspects of the emerging biofuels market;
2) economic diversification and food security concerns, including possible synergy and complementarities between the energy and agricultural sectors;
3) investment needs for biofuel and feedstock production and the possible role of the Clean Development Mechanism (CDM) under the Kyoto Protocol as financing instrument; and
4) technological aspects of biofuels, with special emphasis on developing countries' access to present and forthcoming bioenergy.

Details

Provisional Agenda

Annotated Agenda of Day Two (30 November 2006): Biofuels

Panel 1 - Trade, development and regulatory aspects of the biofuels option

Growing concerns about petroleum price fluctuations, energy independence, and the environmental ramifications of fossil fuel use have drawn substantial attention to biofuels as an alternative to meeting the world’s growing energy demand. As both developed and developing countries attempt to carve out a place for themselves in the emerging biofuels market, both supply and demand of these alternative fuels are expected to rise dramatically. This budding market presents many opportunities for developing countries where biofuels may be produced most easily and cheaply, though different countries will enjoy different opportunities and biofuels may not be the most appropriate option for all of them. International trade in biofuels and feedstocks may provide win-win solutions: For several importing countries it is a necessary precondition for meeting the domestic blending targets; for exporting countries, especially small and medium developing countries, export markets are necessary to augment local demand while initiating their industries. Nevertheless, biofuels face significant tariff and non-tariff measures that offset lower production costs, hamper international trade, have negative repercussions on investments and may jeopardy the achievement of environmental goals. The biofuels market is also distorted by subsidies, loans, direct payments and grants, tax breaks and incentives. Moreover, the biofuel market is distorted by the fact that the agricultural sector in many developed countries is the largest recipient of governments' subsidy programmes.

Questions
a. How can development gains from the production, domestic use and international trade in biofuels be maximized? How should the economic structure of a country, including its agricultural sector, energy distribution networks and the size of the domestic market, be taken into account when crafting policies affecting biofuels? Which kind of regulatory frameworks are being used to spur production and use of biofuels? Which role do fiscal incentives, subsidies and credit schemes play in making the biofuel option workable? Is it worthwhile to subsidize a nascent ethanol industry? For how long? For which kind of countries would large-scale production of biofuels be suitable? What is the role that energy security considerations and environmental concerns play in shaping domestic biofuel strategies?
b. What is the pattern of trade in biofuels? What are the tariff and non-tariff barriers affecting trade in biofuels? What has been the experience of developing countries that have benefited from duty-free and quota-free access to developed country markets under different preferential trade arrangements? Can current trade barriers jeopardize sustainable climate change policies under the Kyoto Protocol and efforts to improve energy security? After the suspension of the Doha Round negotiations, how and where could the trade liberalization agenda for biofuels be carried out? What are the prospects of South-South trade?
c. How could labeling and certification be used to ensure sustainable development, environmental gains and promote social equity, without imposing unnecessary barriers to exports from developing countries?
d. The proliferation of labeling and certification initiatives which may rely on different criteria and requirements may create confusion in the market and put unnecessary pressure on producers. How suitable would be to establish a system of coordination among the different initiatives to ensure overall coherence and transparency? Could UNCTAD be called upon to play such a coordination role?

Speakers:
1. Lakshmi Puri, Director, DITC, UNCTAD
2. Mauricio Tolmasquim, President, Energy Research Group, Ministry of Mines and Energy, Brazil
3. Corrado Clini, Director-General, Ministry for the Environment, Land and Sea, Italy
4. Ron Steenblik, Director of Research, Global Subsidies Initiative, International Institute for Sustainable Development (IISD)

Panel 2 - Economic diversification, food security and the interlinkages between the agricultural and energy sectors

The increasing demand for agricultural land for energy crops production would provide opportunities for sustained increase in agricultural commodity prices. This may result in significant resource transfer to rural areas in developing countries, bringing opportunities for improvements in the standards of living. In the short term, however, higher commodities prices may negatively affect access to food for poor people in developing countries, especially net-food importing developing countries. The increasing use of land for energy crops production is raising concerns about land availability for all needed purposes, such as food, feed, energy, grazing and conservation. On the other hand, some argue that there is room for land availability expansion at the global level which would allow accommodating competing demands for land use. New technologies, the use of marginal lands to grow energy crops, the use of non-edible plants as biofuel feedstocks, and the development of synergy and complementarities between the agricultural and energy sectors would make the risk of tensions between competing land uses less serious than perceived at present.

Questions:
a. What could be the short- and long-term effects of increased commodities prices on different groups in developing countries?
b. Are integrated agro-energy systems possible? Which are the synergies that need to be created or strengthened? What has been recent experience? Is there a need for greater policy coherence?
c. How valid are the claims that that expansion of crop production for biofuels creates new job, revitalizes rural areas, improves social equity and alleviates poverty? What mechanisms can be used to ensure that small producers benefit from the emerging biofuels market?
d. What could be the implications for food availability of devoting an increasing large share of land to energy crops, especially in net-food importing developing countries? What could be the implications for environmental protection and conservation? Would engaging in large scale energy-crop plantations require a trade off between lower food self-sufficiency for higher energy self-sufficiency? Which countries have the potential to bring additional arable land into production? What has been the experience of countries which have engaged in large energy crop production? What has been the impact on other crops?
e. While several developing countries may already be or could become efficient feedstock and biofuel producers, different countries will enjoy different opportunities. Specific country-based assessments may facilitate the task of singling out those countries which are best placed to engage in the biofuel industry. Could UNCTAD be called upon, along with other relevant international organizations, to conduct such assessments?

Speakers:
1. Alexander Muller, Assistant Director-General, Sustainable Development Department, FAO
2. Andre Faaij, Associate Professor; Coordinator Research Energy Supply & System Studies, Copernicus Institute - Utrecht University, The Netherlands
3. Daniel De La Torre Ugarte, Associate Director, Agricultural Policy Analysis Center, The University of Tennessee, USA

Panel 3 - Unlocking finance for Biofuels and CDM projects

Meeting the fast rising demand for biofuels in the international market will require substantive investments in feedstock production and, above all, in feedstock conversion into biofuels. Most developing countries are not in a position to provide the government support that the industry enjoys in developed countries and will need to rely on private investment to foster the establishment of a biofuels industry. Energy financing may however face constraints and barriers, such as capital availability, resources, infrastructure, technology, and domestic regulations, especially related to environment. The Clean Development Mechanisms (CDM) of the Kyoto Protocol offer a useful financial incentive that can help attracting sustainable development-related investments into developing countries. To date, however, no CDM projects related to liquid biofuels have been approved, likely because of overall lack of capacity in CDM project development in many developing countries, and limited availability of CDM baseline methodology specifically developed for biofuels projects.

Questions:
a. What are the investment needs of developing countries willing to embark in biofuels production? What is the role that the FDI may play? What is the role that international and regional development banks may play? What are the risks and opportunities of investing in biofuels projects in developing countries? How to make biofuel projects attractive for financing, including small projects aimed at local consumption? What is the role that stakeholders involved in the whole biofuel value chain may play?
b. Could some increase in biofuel production be financed through the use of Certified Emission Reductions under CDM? Do developing countries stand to gain in terms of additional investment in biofuels projects and proactive climate change policies?
c. How plausible the CDM option is for biofuels value chain production (from feedstock plantation to ethanol and biodiesel production)? How should the leakage issue - which occurs when biofuels produced in a developing country are exported but not used in replacement of fossil fuels - be addressed? How can net climate change gains be ensured?
d. Using the Kyoto Protocol mechanisms to leverage additional financing for biofuels is still lagging. Could UNCTAD play a role, along with other relevant international organizations, in making the CDM a real drive for sustainable development investments in developing countries? Which kind of technical assistance may be needed by developing countries to enhance their capacity to deal with biofuel projects' financing?

Speakers:
1. John Christensen, Director, UNEP-Risoe Center
2. Thierno Bocar Tall, Director of Strategic Planning and in charge of NEPAD and Cooperation, ECOWAS Bank for Investment and Development
3. François Falloux, Vice-chairman, Eco-carbone, Paris, France

Panel 4 - The technological dimension of biofuels

The technologies used so far to produce biofuels are rather simple and well-known. However, some developing countries still need to improve their capacity to adapt existing technologies to local conditions. Moreover, the need to increase biofuel availability to meet growing demand, maximize feedstock use, and reduce production costs will necessitate switching to more sophisticated and likely proprietary technologies. However, the switch to more complex and less available technologies may hamper developing country efforts to become viable and efficient suppliers of biofuels.

Questions:
a. How relevant is technology in defining a national biofuels strategy? Which technological preconditions are necessary for a developing country to become an efficient biofuel producer? Which kinds of technologies are suitable for small producers? What is the minimum efficient scale of biofuel production facilities?
b. How complex is the technology needed to produce the so-called "second" and "third" generation biofuels? When will it be commercially available? Would the switch to more sophisticated energy technologies hamper developing country efforts to become viable and efficient biofuel suppliers? How to ensure that they do not lag behind? How can developing countries be supported in the process of adjusting existing and forthcoming technologies to their unique environmental and social conditions? What role would transfer of technology play in this field, including South-South transfer of technology? What are the incentives currently available for the use of the existing technology? Would these incentives somehow hamper the switch to new technologies?
c. What is the role of intellectual property protection in the biofuel field and its interaction with access to energy technology, especially in developing countries? Which biofuel technologies are in the public domain and which ones are or will likely be patented?
d. What are the current R&D projects in the sector of biofuel technology (public and private)? What additional efforts would be necessary? Which kind of policy instruments would boost R&D in the biofuel sector?
e. The biofuels industry is still a young industry and several knowledge gaps, including on the technological dimension of the industry, exist. A dedicated web site which collects and makes available information and analysis on the biofuels industry and market may contribute to overcoming some of the existing gaps. Could UNCTAD be called upon to set up such an instrument?

Speakers:
1. Eric Larson, Research Engineer, Energy Technology Assessment/Energy Policy Analysis Group, Princeton Environmental Institute, Princeton University, USA
2. Amilcar Guerreiro, Director, Energy Research Group, Ministry of Mines and Energy, Brazil
3. Lew Fulton, Program Officer, Sustainable Transport Division of GEF Coordination, UNEP

Papers

An Assessment of the Biofuels Industry in Thailand, UNCTAD/DITC/TED/2006/7 Download

An Assessment of the Biofuels Industry in India, UNCTAD/DITC/TED/2006/6 Download

An Assessment of Projects on the Clean Development Mechanism (CDM) in India, UNCTAD/DITC/TED/2006/5 Download

The Emerging Biofuels Market: Regulatory, Trade and Development Implications, UNCTAD/DITC/TED/2006/4 Download