The increasing support for biofuels production over the last years in both developed and developing countries has been taking shape under a variety of policy tools aiming at several objectives: from increasing biomass, to land conversion, redistribution issues, fuel consumption, fuel and food prices, to cite a few. Subsidies, under various facets across countries, are the most commonly used measure in support of biofuels production. With a direct subsidy, for example, governments sustain farmers for every unit of biofuels/biomass produced. In European Union, United States, Brazil and now also in several developing countries (OECD, 2008), direct subsidies promote the use of set-aside lands for non-food crops cultivation and help in reducing various input costs such as fertilisers, feedstock and distribution.

Economic reasons advocate subsidies for biofuels production given that these cause reduction in GHG emissions. Therefore, to recognise biofuels for emission reduction and improving environmental quality, a GHG credit mechanism in the form of a subsidy is being considered as a viable instrument to incorporate (credit) that externality in the final price of biofuels commodities. Evidence of distortionary effects of subsidies is nonetheless common in economics such that caution should be used when implementing such tools (Koplow, 2006; Steenblik, 2007). The distortion would arise when using subsidies for unproductive investments with consequent market inefficiency (i. e. in production, consumption and prices) causing loss of well-being to the society and damaging the natural environment. Further debate considers the relationship between crude oil prices and food prices (Tyner, 2007). Over the last years, the rise in crude oil prices is putting considerable pressure on primary food prices (i. e. corn prices), and having a fixed subsidy on biofuels feedstock (e. g. ethanol) would certainly not help to keep food prices down. Contrarily, subsidising the biofuels industry is pushing higher investments in the sector causing food prices to increase with more damaging repercussions in the economies of the developing world. Tyner (2007) considers alternative policy mechanisms to a fixed per unit subsidy such as a variable rate linked to crude oil prices or higher subsidies to enhance third-generation biofuels (i. e. cellulose — based ethanol) to reduce agricultural prices and re-establish the balance between land for food cultivation and land for biofuels feedstock.

Other measures than subsidies can also be advocated for biofuels production. These are in the form of investment grants (from government and/or public institutions) to ensure that adequate start-up phases for agricultural feedstock conversion and efficient distribution at pumps take place. Furthermore, in the United States and European Union, forms of fuel excise tax credit are allowed for biofuels blenders. These can claim the tax credit for the blending content of renewable fuel used in a unit of (fossil) fuel sold. Also, carbon dioxide excise tax exemption is also practised in support of biofuels commodities consumption. Finally, an additional measure to support biofuels use aims at protecting domestic industries through the use of tariffs on imported biofuels goods. This instrument is currently used across a number of countries or block of countries and is more or less damaging on the competitiveness of international trade.

Various support policies are nonetheless being adopted across countries to promote biofuels use. The recent Commission Directive 2009/28/EC on the promotion of energy from renewables establishes Member States’ shares in renewables required by the Commission by 2020. Renewables shares as well as recent biofuels shares in 2007 (European Commission, 2009) are illustrated in Table 2.2.

Current projections (EurObserv’ER, 2009) also estimate that the European Union is near (5.3%) in reaching the target of 5.7% of renewable fuels under Commission Directive 2003/30/EC by 2010. In order to achieve the desired target, the European Union allows for certain tax measures to promote biofuels

use across Member States. Of particular interest are tariffs on ethanol imports. These correspond to 10.20/hl for denaturated ethanol and 19.20/hl for undenaturated ethanol. Although these measures are still seen as protectionist approaches to biofuels production (and therefore a threat to resource access) from developing countries’ perspective, biofuels industries in the European Union are relatively ‘new’ (compared to those already in place in Brazil or United States). Furthermore, the latest European Union enlargement and the restructuring of the energy market (and that of Eastern European economies) may be seen as arguments in favour of the use of tariffs on imported biofuels commodities to promote the development of a European biofuels market. Prevalent practices across the

European Union are also those incorporating tax rates into the selling of transport fuels which are comparable to 3.5% of total fuel use in the transport sector from 2010. On average, tax rates on biodiesel and ethanol are currently 50% lower than those on diesel and gasoline.

Likewise in the United States similar measures are used to support the biofuels chain (including consumption). These can be found in the form of tax incentives for fuel-switching engine cars or quality standards on fuels. Over the last years, though, the American public support has turned its attention to third-generation biofuels (e. g. biomass/cellulose-based biofuels), sustaining numerous projects. However, at present, excise tax credits (USD 0.135/l for ethanol and USD 0.264/l for biodiesel) and import tariffs are mainly used as instruments for biofuels support across states. The support policy for biofuels in the United States tends to apply low tariffs on imported biofuels commodities. Tariffs on ethanol are for example the equivalent of 1.2-2.5% of the tariffs in countries outside NAFTA. Blending practices are also notably applied to favour the re-export of biofuels goods in particular to the European Union.

In countries, such as Brazil, China, Japan and Canada, other specific, but analogous measures, are being implemented. Brazil has for long benefitted from tax exemptions, and also blending of ethanol to fossil fuels (ranging between 20-25% of ethanol content) is regulated according to government resolutions. Biodiesel blending to diesel mandates are in the figure of two and five per cent from 2013. On the international side, Brazil applies a high tariff (e. g. 20%) on imported biofuels commodities to protect the domestic market. China has only recently supported the production of biofuels though its promotion is still going through an experimental phase. The government, on the other hand, fully supports the distribution losses across the country. Blending with other fuels (enforced at ten per cent) is in force only in few cities (i. e. around 26 in 2006), and substantial subsidies are currently in place including forms of refund for value added.

Similar to China, the Japanese experience in biofuels production is also experimental, and most policies aim at setting targets for biofuels use in the transportation sector only. Canada, on the other hand, is a step forward compared to Asian countries. Compulsory mandates for blending ethanol and biodiesel in fossil fuels range between two and five per cent content by 2012. At federal level, Canadian government is heavily supporting (CAD 2.2 billion from 2008, OECD, 2008) biofuels production and consumption with additional tax exemption measures, subsidies and import tariffs (CAD 0.05/l) on imported biofuels commodities.