Colombia, in order to reduce gasoline and diesel consumption, has implemented policies to encourage domestic production of biofuels. This purpose is economically boosted compared to fuels consumption reduction by the automotive industry and the best environmental indicators of mobile source emissions given the oxygenating effect of biofuels in combustion. For that reason in 2001 it is passed the Act N° 693 and in 2004 the Act N° 939, which states regulations on alcohol fuels and vegetable oils in the country, and creates incentives for their production, marketing and consumption.

In this regard, the Government has promoted development of biofuels through different measures to encourage their production and use. In this matter there is a broad regulatory and incentives for bioenergy production in Colombia, namely (Ministerio de Minas y Energia, 2007; Cala, 2003):

Act 693/2001: the regulations about the use of alcohol fuels are thereby stated; Incentives are created for their production, marketing and consumption. This act makes obligatory the use of oxygenated components in fuels for vehicles from cities with more than 500,000 inhabitants. A deadline of 5 years was established for gradual implementation of this regulation.

Act 788/2002: tax reform where exemptions were introduced to the Value Added Tax (VAT), the income tax and surcharge on alcohol fuel blended with gasoline engine.

Act 939/2004: defines the legal framework for the use of biofuels, by which the production and commercialization of biofuels of plant or animal origin, are thereby encouraged for use in diesel engines and other purposes. Exempts biodiesel from VAT and the income tax and establishes a net income exemption for 10 years to new oil palm plantation. This exemption applies to all plantations to be developed before 2015.

Act 1111/2006: establishes a 40% income tax deduction of investments in real productive fixed assets of industrial projects, including financial leasing.

Act 1083 2006: some regulations on sustainable urban planning and other provisions are thereby stated.

Resolution 1289/2005: establishes biofuels criteria quality for their use in diesel engines, states the date of January 1st 2008 as a blending start of 5% of biodiesel with diesel fuel. Resolution No. 180127/2007: the heading "MD" in Act 4 from Resolution 82439 from December 23th, 1998 is thereby amended and amends Act 1st from Resolution 180822 from June 29th, 2005 and, states the provisions relating to Diesel Fuel pricing structure.

Decree 383/2007: Amends the Foreign-Trade Zones Decree 2685 of 1999, regulates the set up of Special Foreign-Trade Zones for high economic and social impact.

Decree 3492/2007: Act 939 of 2004 is thereby regulated.

Decree 2328/2008: The Intersectoral Commission for Biofuels Management is thereby created.

Decree 4051/2007: Permanent Foreign-Trade Zones area requirements is thereby stated; requirements for stating the existence of a Special and Permanent Foreign-Trade Zone and Industrial User recognition.

Resolution No. 180158/2007: clean fuels are stated thereby in accordance with the Paragraph in Article 1, Act 1083.

Resolution No. 180782/2007: biofuels quality criteria for use in diesel engines as a component of the blending with fossil diesel fuel in combustion processes are thereby amended.

Resolution No. 180212/2007: Resolution 181780 December 29th, 2005 is thereby partially amended, regarding the pricing structure of diesel fuels blended with biofuel for their use in diesel engines.

Decree 2629/2007: provisions for promoting the use of biofuels in the country are thereby stated, as well as applicable measures for vehicles and other motorized devices that use fuels. From January 1st, 2010 timetable is thereby set up for extending the mandatory blending of biofuels of 10% and, 20% from 2012 as well as the requirement that from January 1st 2012, new vehicle parc and other new motorized devices should be Flex-fuel at least 20%, for both E-20 blending (80% of gasoline from fossil fuel, with 20% of alcohol fuel) and B-20 (80% of diesel fuel with 20% of biofuels).

Decree 1135/2009: In connection with the use of alcohol fuels in the country and applicable measures to motor vehicles using gasoline, decree 2629, 2007 is thereby amended. And which states in its article 1: from January 1st, 2012 motor vehicles up to 2000 cm3 manufactured, assembled, imported, distributed and marketed in the country and requiring gasoline to operate, must be soup up so that their engines run Flex-fuel system (E85), i. e. they can work normally by using either basic gasoline or blends composed of basic fossil fuel with at least 85% alcohol fuel. To meet the above, each brand shall sell vehicles in the Colombian market according to the following schedule and provisions:

From January 1st, 2012: 60% of its annual supply must support E85.

From January 1st, 2014: 80% of its annual supply must support E85.

From January 1st, 2016: 100% of its annual supply must support E85.

From January 1st, 2013: vehicles with engine cubic capacity greater than 2000 cm3 from all brands and models shall bear E85.

It is worth mentioning CONPES-3510/2008 document (in English: National Council for Economic and Social Policy document 3510/2008), where a policy to promote the

production of sustainable biofuels in Colombia is thereby established, by taking advantage of economic and social development opportunities which are offered by biofuels emerging markets. Thus, it intends to expand the known biomass crops in the country and diversify the energy basket within a framework of production that is financially, socially and environmentally efficient and sustainable, that makes possible to compete in domestic and international markets.

Likewise the promotion of biofuels is also done through: the National Development Plan (NDP), the establishment of a regulatory framework and the development of financial and tax incentives. Also, the National Government has policy guidelines in areas such as: agriculture, research and development, infrastructure and environment that influence biofuels development.

There are also other complementary policy developments in the form of decrees and ministerial decisions that define the technical regulations, quality standards, as well as pricing, margins and rate parameters for fuel ethanol and biodiesel transport. There is an applicable regime in the Foreign-Trade Zone and several soft loan sources for agricultural development (Gonzalez, 2008).

Among them, in the framework of Agro Ingreso Seguro Program (AIS), financial instruments that provide soft loan sources for growing crops that produce biomass for ethanol and biodiesel production have been implemented. In addition, through the Incentivo a la Capitalization Rural, ICR (in English: Rural Capitalization Incentive) it is promoted, among others, oil palm crops establishment and renewal, and the construction of infrastructure for biomass processing (Consejo National de Politica Economica y Social (CONPES, 2008)

Despite this broad regulatory framework, there is uncertainty about changes in: regulation, raw material prices and emerging new technologies. In particular, with gallon prices as defined by state intervention (subsidies), that generates the discussion about how much does it mean for the national treasury, and whether it is advisable or heavy subsidies is fair to benefit a minority that supply biofuels, for even small domestic market and one that is difficult to be exported.

As shown, the Colombian Government has a fairly strong policy and information that allows for investment in projects, sustainable energy and biofuels plans and programs through a set of tools, studies and institutional strengthening.

Therefore, the Colombian Government has promoted assessments that seek to: a) study the implications of the biofuel industry, from planting crops for biofuel production to the final consumers of ethanol or biodiesel (flex-fuel or normal vehicles); b) analyze the current infrastructure requirements for the expansion of the biofuel market; c) know the sector current status, as well as the economic instruments, regulatory elements, policies and tax incentives required or recommended for promoting renewable energy, energy efficiency and biofuels; d) analyze the renewable energy potential, energy efficiency and carbon credits through the Clean Development Mechanism. Likewise, institutional strengthening assessment required by the Ministerio de Minas y Energia (English: Ministry of Mines and Energy) (MME), in energy efficiency, renewable energy, bioenergy and carbon financing. This set of measures that promote the enthusiasm for liquid biofuels such as the mandatory blending of biofuels with fossil fuels and tax incentives, have created a fast artificial growth in biofuel production. These incentives have broad social impacts, as they are resources that do not come into the State, and are taken for solving important issues such as health, education and basic sanitation.

These measures entail high economic, social and environmental costs and should be monitored promptly.