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Implications of a Future Global Biofuels Market for Economic Development and International Trade

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HARVARD UNIVERSITY JOHN F. KENNEDY SCHOOL OF GOVERNMENT Implications of a Future Global Biofuels Market for Economic Development and International Trade Report of the John F. Kennedy School of Government Workshop on Biofuels, May 9, 2007 Henry Lee, William Clark, Robert Lawrence, Gloria Visconti1 VRTEASI1On May 9th, 2007, Harvard University’s John F. Kennedy School of Government brought together experts from academia, international institutions, government, and the private sector to explore possible implications of emerging global biofuels markets for economic development and international trade. The workshop was convened by the Sustainability Science Program2 and the Environment and Natural Resources Program3 at Harvard University at the request of the Chair of the Global Bioenergy Partnership4 to advise GBEP and its members of present thinking on this topic and to inform future policy research efforts. To maximize discussion and debate, attendance at the workshop was by invitation only. Individuals were invited in their private rather than institutional capacity. Moreover, participants agreed that what was said at the workshop would be not be attributed to any specific individual. To convey the results of the discussion to a wider audience, the conveners have prepared the present summary report. It is our aim to use this report as a stepping stone to further policy dialogue and research. Comments from readers are therefore invited. I. Background The workshop was motivated by the extremely rapid rise of interest in biofuels around the world. This interest is reflected at the highest levels of policy, with the United States’ President, George W. Bush, announcing a goal of a 5 fold increase in biofuel use by 2017 and the European Union establishing a 10% binding minimum target for the share of biofuels in overall EU transport liquid fuel consumption by 2020. Brazil, long a leader in the use of biofuels, is considering a major increase in its capacity, while countries as diverse as India, Peru, South Africa, Nigeria, and Indonesia perceive biofuel production as a means to address their national needs. Much effort has been devoted to exploring the goals for biofuel use, scenarios of its penetration into global and local energy markets, alternative biofuel technologies and their performance standards, and the possible impacts of biofuel development on other sectors and social goals. The results of this ongoing debate constituted the background of the present workshop, but were not its focus. Instead, the participants concentrated on the strategic policy issues raised by the growing attention to biofuels. If the world were to dramatically ratchet up biofuel production and consumption as suggested by current pledges and plans, it will be asking development policy and regulatory frameworks traditionally concerned with food and fiber production to enter the2complex arena of global energy policy. This transition is unlikely to occur without substantial confusion and uncertainty. Similarly, major national and global commitment of land and water resources to biofuel production will almost certainly have major implications for other sectors that rely on those resources, from agriculture to ecosystem conservation. Once again, it is unlikely that present policy arrangements will be optimal for such a dramatic realignment of interests and incentives governing resource use. The world will certainly be served by systematic thinking of how policy toward biofuels could best be developed, domestically and internationally, so as maximize the long-term benefits to society. To stimulate such thinking in our own group, we therefore simply assumed for the duration of the workshop that biofuels will become a significant component of the world energy system over the next decades.5 We then posed three groups of questions: A) The policy environment: Which sectors and interests have what potential stakes in the biofuels debate? In particular: • To which energy-related goals are biofuels most relevant? How big a contribution might biofuels make to those goals? Which interests have the strongest stake in how the energy debate develops? • How are social goals for food and fiber production likely to be affected? Should these interactions be a concern? What policy measures could mitigate the potentially negative impacts of biofuels on food and fiber production, while taking advantage of opportunities and synergies? • What are the most important environmental considerations? What can now be said about the relative advantages and disadvantages to the environment of different biofuels development paths? • Under what conditions are international sustainability standards for biofuel production likely to emerge? How can the international community of nations insure that sustainability criteria are not used as a way for developed countries to protect3their domestic market against competition from lower priced biofuels produced in developing countries? B) Economic Development: How might individual countries usefully think about the possible role of biofuels in their own economic development? In particular: • Under what conditions and in what ways should developing countries seek to stimulate the development of domestic biofuel industry that maximizes the benefits to their population? • Is it possible to develop a vibrant biofuel production industry without impacting domestic food prices and availability? • How can countries shape their biofuel industry so that the poorer rural areas capture a portion of the benefits? C) International Trade: How should the world community think about and prepare for significant international trade in biofuels? In particular: • How is trade in biofuels likely to emerge? What type of trading regime would be desirable? What should be the role of the WTO, bilateral trade agreements, and domestic restrictions to imports (or in some instances exports)? • In the context of WTO negotiations, should biofuels be treated as an agricultural good or as an “environmental good or service”? • How might the tension between domestic agricultural and energy interests play out within the context of biofuels trade? How might countries deal with the GMO issue in a world in which cellulosic ethanol becomes plentiful? The workshop participants engaged in a wide-ranging, and often overlapping, discussion of these


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