The ability of biofuels to contribute positively to the environmental and eco­nomic performance of a country, and to improve energy security in the long term, makes the nascent industry a tool that policymakers can employ to meet national priorities in these areas. A review of the priorities that gov­ernments are pursuing when designing biofuel-related policy illustrates some issues that the emerging bioethanol industry might consider. These issues may have particular relevance to the commercialization of the lignocellulosic — based component of the industry.

In the USA, the primary political drivers that support research and de­velopment into bioethanol for fuel are related to the economy and to energy security. Two agencies have become the primary implementing bodies for US policies related to bioethanol. The Department of Agriculture (USDA) has a mandate to increase rural employment, diversify agricultural economies, and stimulate rural development by harnessing crops and crop residues and identifying new uses for this material. The Department of Energy (DOE) has a mandate to diversify the energy supply, expand the availability of renew­able energy sources, and develop new technologies to exploit renewables in all forms.

From an economic perspective, bioethanol policy in the USA has been highly successful. Since 1976, bioethanol production capacity has grown sig­nificantly. Almost a decade ago, the US industry passed 5 billion L in an­nual production and was credited with the creation of an estimated 200 000 new jobs and US$ 500 million in annual tax receipts [4]. Today, there are 94 bioethanol plants in the USA, producing about 18.5 billion L year-1, with an additional 16 plants and 2.5 billion L of capacity under construc­tion [13]. Urbanchuk [85] estimated that expansion to this level would require US $ 5.3 billion investment in new facilities and would increase demand for crops by 1.6 billion bushels per year. In that report, the author anticipates that a bioethanol industry of this size could reduce the US trade deficit by US$ 34 billion year-1, create 214 000 new jobs within the USA, and gener­ate US$ 51.7 billion in new US household income. It should be noted that the success of the US industry is in part due to the presence of import tar­iffs on bioethanol (duty of 2.5% market value, plus US$ 0.143 L-1) [23]. While some regions (notably the Caribbean) may export duty-free bioethanol within a quota, the maximum amount of duty-free bioethanol entering the USA is currently 7% per year. This means that it is not cost-effective to import large supplies of bioethanol from other producers, such as Brazil.

From a security perspective, bioethanol policy has been less success­ful. American demand for petroleum continues to outpace domestic sup­ply, resulting in growing petroleum imports, anticipated to be nearly 70% by 2020 [18]. Only about 3% of US energy requirements are supplied by biomass [56], and only about 2.6% of American total transportation fuel consumption is derived from biofuels [18]. Five individual US states (South Dakota, Nebraska, Minnesota, Iowa, and Illinois) now produce enough bioethanol to provide an E10 option to their entire local population. From the perspective of energy security, the USA could benefit from continued ex­pansion of the bioethanol industry and increased utilization of the industry’s potential.

Globally, Germany has the best capacity to substitute biofuels for fossil — based fuels, with current capacity of about 3.75% total demand, followed by the USA (2.6%), Sweden (2.2%), France (1.2%), Austria (1.1%), and Spain (0.44%) [9,35,36,43,48,60].

The issue of climate change has become a major, global concern, but the sectors most closely linked to bioethanol production — including energy pro­ducers, farmers, and foresters — will feel the impact of this issue more closely. Climate change is the driver behind many new policies that influence the ac­tions taken by these sectors. Perhaps the best-known of these is the Kyoto Protocol, which has been ratified by Russia, by the members of the EU, and by Canada in North America. The Clean Skies Initiative in the USA is another example of these policies. Because the use of bioethanol has the potential to significantly reduce net greenhouse gas emissions compared to petroleum products, an expansion of bioethanol production may become a significant part of national climate change strategies. It must be noted, however, that sig­nificant amounts of bioethanol must be substituted for petroleum products in order for these reductions to make a significant impact on total greenhouse gas emissions.

6

Conclusions

Successful policy options to support biofuel production may take a number of forms, including targets and mandates, exemption of biofuels from national excise taxation schemes, direct government funding of capital projects to in­crease capacity or upgrade distribution networks, or consumption mandates for government or corporate vehicle fleets. As discussed in this review, these policies can be differentiated by their relative emphasis on government, in­dustry, or consumer actions. In most biofuel-producing countries examined here, a number of policies have been enacted in order to develop industrial capacity and encourage consumption. It is very difficult to measure the indi­vidual success of these policies because of the synergistic effects that multiple policies may have.

In the USA, an analysis of state-level excise tax exemptions shows no correlation with bioethanol industry capacity, which suggests that these ex­emptions are not a crucial factor in the creation of industrial facilities. Direct funding and support was found to play a much more positive role in the creation of production capacity. It was noted that strong funding for es­tablishment of facilities, including all aspects of research, development, and deployment, was present in each of the states where significant bioethanol production was present. In a comparison of production capacity between 2003 and 2005, it was observed that the correlation between direct funding opportunities and bioethanol production capacity has dropped somewhat. This indicates that other factors, including feedstock supply, the presence or absence of interested industrial players, and other market forces play a signifi­cant role in the establishment of the industry.

In advising governments on the creation of bioethanol-friendly policy, the US experience offers some valuable lessons to consider. The US goals behind policies supporting the bioethanol industry are dominated by (1) economic and social issues, and (2) security-based concerns. Of these priorities, the bioethanol industry has been more successful in meeting social criteria such as rural employment. The starch-based segment of the bioethanol industry has enjoyed particular success in the USA, particularly in Minnesota, Illi­nois, and Iowa. In the past, these jurisdictions have utilized a number of schemes, including direct payments, grants, corporate tax breaks, and ex­cise tax exemptions, as incentives to lure the industry and build bioethanol capacity.

The ability of the industry to increase energy security in the USA, on the other hand, has been limited by the relatively small capacity of their production facilities at the current time. This should serve as a cautionary measure for governments in both Canada and the EU, who have invested biofuel-related policy with more emphasis on the environment and on energy security than they have upon social or economic concerns. Improved en­ergy security through biofuel production can only be achieved when enough capacity is brought on-line. Thus, security-related policy geared to the short­term cannot succeed to any great extent. Policymakers must realize that, in the immediate future, the goals of most successful policies will be related to the economy, and perhaps to the environment. The implication here is that security-related policy, such as mandated renewable fuel use, is likely to take the form of long-term programs that have very little immediate reward.

One important finding was that a balance between research funding and funding for the creation of facilities might be more conducive to support­ing the industry. It was noted that the USA has devoted a significant amount of funds to research as well as to supporting facility creation. A commit­ment to advancing the technology and improving efficiencies may serve to increase the industry’s comfort level in committing resources to this sec­tor. The US example may have important lessons for other countries, where an effective balance between research and commercialization has not been reached. For instance, the total French commitment to biofuels in 2002 was just under US$ 200 million, of which about US$ 180 million is devoted to investment subsidies for biofuels, and a further US $ 11 million was put to­wards wood energy programs. Only about US $ 9 million was earmarked for research and development into renewables, including biofuels research [32]. Although the incentives that the French government offer are dramatic, the research focus of this country has been in other areas, notably nuclear power. This may in part explain the relatively low level of bioethanol production in France, which is currently at about 140 million L year-1 (or 629 million L when bio-ETBE production is considered) [35]. In Spain, the total investment is much lower at approximately US $ 30 million per year, but over half of this amount (US $ 17 million) is available for research and development into var­ious renewables, while the other half may be used for commercial facilities or demonstration plants [32]. Perhaps because of this, Spanish production of bioethanol is at about 521 million Lyear-1 [43]. The balance between research and production incentives that is present in both Spain and the USA, and the resultant human capital, may in part account for the success that these nations have had in nurturing the bioethanol industry.

The experiences gained in developing bioethanol capacity, using both sugar — and starch-based processes, contain many lessons for other biofuels, including biodiesel and the lignocellulose-based bioethanol industry. These fuels can be seen as a response to a variety of domestic issues, including the need to diversify local economies, increased concerns over environmen­tal damage associated with fossil fuel use, and a growing security rationale for a shift to domestic fuel sources. The emerging industry, including the lignocellulosic-based sector, may in turn find opportunities for strategic link­ages and partnerships that capitalize upon these political issues.

Our findings indicate that successful policy interventions can take many forms, but that success measured as biofuel production capacity is equally dependent upon external factors, which include feedstock availability, an ac­tive industry, and competitive energy prices. It is important that policies be crafted that reflect “realistic” use scenarios for bioethanol and other biofuels over future time-frames.

Acknowledgements The authors would like to thank the International Energy Agency (IEA) Bioenergy Task 39 for providing some of the funding required to support this work. The authors also recognize the assistance of Jack Saddler, John Neeft, and other colleagues within Task 39, as well as the Forest Products Biotechnology Group at the University of British Columbia.

[1] The unit bbl is an abbreviation for barrel, a common unit of measurement for petroleum, equiva­lent to 42 US gallons or approximately 159 L.