World Energy Outlook 2006

Only those regions that have the potential to produce biofuels without subsidy
are expected to export. Most exports will probably take the form of ethanol
derived from sugar cane, because there will be less need to subsidise it,
compared with biodiesel, and because countries that subsidise biodiesel are
unlikely to permit producers to export that fuel. Brazil is expected to remain
the largest ethanol exporter over the projection period. Some developing Asian
and African countries have ethanol production costs close to those of Brazil and
may emerge as significant exporters in the coming decades, depending on
domestic requirements and trade policies. Malaysia, Indonesia and the
Philippines could become exporters of biodiesel derived largely from palm oil.
The European Union and the United States may become sizable net importers
of biofuels, especially in the Alternative Policy Scenario, as demand outstrips
domestic production. The way international trade in biofuels develops will
depend on whether trade barriers are removed, on subsidy policies and on
timely investment in production facilities.
In the Reference Scenario, existing biofuels policies are assumed to remain in
place. A growing number of governments are actively supporting the
development of the biofuels sector in recognition of the environmental benefits
and energy-security benefits from reduced oil imports and from more diverse
sources of energy supply. Although national circumstances vary markedly, in
every country that has managed to develop a sizeable biofuels industry, strong
government support has been required to kick-start the industry and bridge the
gap between the market value of the fuel and its production cost. Government
support can take various forms, including direct financial assistance to biorefiners
and retailers in the form of grants, tax credits or cheap loans, subsidies to farmers,
tax exemptions for flex-fuel vehicles and tax exemptions or rebates for biofuels.
A number of countries have also set targets for the percentage and quantity of
biofuels to be used in pure form or blended with conventional fuels. In some
countries, fuel retailers are obliged to market particular blends, such as E20 in
Brazil. A 2% biodiesel blend, which is currently voluntary, will become
mandatory in that country from 2008. Mandatory fuel-mix requirements for oil
companies are applied in 11 countries. Table 14.3 summarises the main measures
currently in place in selected countries.
In the Alternative Policy Scenario, new policy measures to encourage the
production and use of biofuels, which are now being considered by
governments around the world, are taken into account (see Part B). These
include larger subsidies to producers and consumers of biofuels and flex-fuel
vehicles, more extensive vehicle-purchase mandates and increased spending on
research and development. Trade barriers for agricultural products are also
assumed to be reduced. Such barriers are restricting access in many
industrialised countries to imported biofuels, which is holding back the growth
of the industry in countries with the lowest production costs.
Chapter 14 - The Outlook for Biofuels
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