In addition to the United States, bioenergy development has become important in many other countries and regions around the world.
Europe is heavily dependent on foreign oil, and similar to the U.S., has launched major biofuels programs. The European Union has a goal of replacing 5.75% of its liquid fuel consumption with biofuels by 2010 (EU Commission, 2006a,b). France has a more ambitious goal of 7% by 2010 and 10% by 2015. The targets are non-binding. Current biofuel subsidies are fixed and the incorporation of a variable subsidy could potentially result in government savings worth several billion Euros (Caffe, 2006).
The European automobile fleet is predominately diesel compared with the U.S. which is mostly gasoline powered, and consequently, biodiesel is more important in the European context than ethanol. Rapeseed is the major feedstock used for biodiesel production. The European goals will absorb most, if not all, of their excess agricultural production capacity. For example, it is estimated that for France to reach its 2010 target relying on feedstocks produced within France, it will need to use most of its set-aside agricultural land, eliminate most rapeseed exports, and compete for land with food crops for part of the production. France is unlikely to achieve its 2015 target without substantial technical improvements and/or significant imports of raw materials (e.g., palm oil from Asia) (Caffe, 2006).
Other countries are also considering or enacting biofuels policies. Brazil has the world’s oldest and largest biofuels program, producing ethanol from sugarcane for its own domestic use and for some exports. China is considering a national renewable fuels standard (Renewable Fuel News, June 19, 2006) and will produce ethanol from cassava, a starch rich tuber produced in China. Nationwide, the Chinese government is considering a target of 15% biofuels by 2020, and is also considering a 10% ethanol standard in polluted cities like Beijing and Shanghai to help improve air quality. China is also investing in research for the production of ethanol from cellulosic feedstocks. Japan has announced a program to have 40% of its cars using biofuels by 2010 (Renewable Fuel News, June 26, 2006 and July 3, 2006). At present, a mixture of at least 3 percent ethanol is required for gasoline fuels. All new cars must be able to run on E10 by 2010. Indonesia and Malaysia have committed 40% of their palm oil production to produce biodiesel (Renewable Fuel News, July 24, 2006). Both countries plan on substituting biodiesel for a substantial portion of their domestic diesel fuel use. India has begun selling 5% ethanol blends and expects to launch a 5% renewable fuels standard shortly (Renewable Fuel News, September 11, 2006). The South African government is close to adopting a 5% blending requirement for biodiesel and 10% for ethanol fuels (Ethanol and Biodiesel News, December 4, 2006). Many other countries have also launched biofuels projects or are considering biofuels programs.
The combined impact of these programs will result in the availability of fewer agricultural commodities for domestic feed and food use, and for exports. The huge scale of biofuels programs will mean higher commodity prices globally, not just in the countries and regions with biofuels programs. These significant price increases will lead to changes in what is produced and where, and will change trade patterns for many agricultural commodities.
The growing biofuels market will impact international agricultural (World Trade Organization) trade negotiations. Developing countries want the wealthier OECD (Organization for Economic Cooperation and Development) countries to substantially reduce their subsidy programs that link prices and production (the so-called coupled subsidies). Currently in the U.S., the increased demand for corn to produce ethanol is resulting in the market price of corn to exceed loan deficiency payment (LDPs) and counter cyclical payment (CCP) levels, thus having the effect of replacing agricultural subsidies with an ethanol subsidy, which under existing WTO agreements, is legal. Concurrently, competition for land is leading to increased prices for other subsidized commodities, such as soybeans and wheat, resulting in their market prices to also exceed their LDP and CCP support levels, so that at the present time, these programs are not being implemented. With respect to WTO negotiations, this change may reduce the conflicts associated with domestic agricultural supports as they will have been supplanted largely by biofuels subsidies.