interventions. Tey did not, however, make more definitive statements about biofuels and their links to food prices because of disagreements between large producers (like Brazil) and net food import- ers (like China) on the importance of these links.2 Te role of policy support to domestic biofuels sec- tors—in the form of tax credits, subsidies, and tar- iffs against imported ethanol (for the United States and the European Union)—remains a concern for key stakeholders. Indeed, key countries display different social
preferences in handling the delicate issue of food– fuel links depending on the local dynamics of agricultural demand and supply. In Brazil, the flexibility of sugar-ethanol mills allows producers to shiſt easily between ethanol and sugar produc- tion based on prevailing market conditions for food (sugar) and fuel (ethanol/gasoline) and pro- vides them with constant, year-round outputs in their supply chain. Since 2008 Brazil has reduced its exports of ethanol to the world market, in part because of rising US production and exports, increased demand for sugar from large consumers like India, and high and uncompetitive prices in its domestic ethanol market.3 As a result, in 2010 and 2011 Brazil found itself importing ethanol from the United States, boosting US biofuel revenues, and making the US tariff against Brazilian ethanol imports inconsequential. China has backed off of aggressive expansion of
biofuel production in the past five years because of concerns about domestic grain markets and prices. China’s biofuel production started rapidly with the building of four state-owned ethanol plants in 2001. By 2007, it had produced a total of 1.35 mil- lion tons of ethanol, placing it third in the world. At that point, this rapid rise was halted and the use of cereals in biofuel production was capped.4 Despite some atention to the impacts of bio-
fuels on food security, much of the policy discussion over biofuels in 2011 focused on environmental con- cerns.5 International biofuel markets are domi- nated by the European Union and the United States, the largest consumers and producers of biodiesel and ethanol, respectively. While neither adopted major policy changes in 2011, the year was still one of intense debate, paving the way for
50 THE STORY GETS MORE COMPLICATED
potentially important decisions in 2012. Although the policy debate focused on the environment, any decisions made regarding biofuel production will have implications for global food markets, given the volume of crop-based feedstocks that are converted annually.
EUROPEAN UNION
In the European Union the consumption of bio- fuels is a key component of a decision to reduce greenhouse gas emissions from the transport sec- tor by replacing fossil fuels with renewable energy. In 2003 a European Union directive set a target of 5.75 percent for renewable-energy use in the transport sector by 2010. In 2009 the European Union adopted the Renewable Energy Directive, which has a target of 10 percent by 2020. Although renewable energy can include electricity, hydro- gen, or second-generation biofuels (that is, etha- nol and biodiesel made from nonfood feedstocks such as agricultural residues and switchgrass), the main mechanism for meeting this target is and will remain first-generation biofuels. Te directive also established environmen-
tal sustainability criteria for biofuels, including a minimum rate of direct greenhouse gas emission savings (35 percent in 2009, rising to 50 percent in 2017) and restrictions on the types of land that may be converted to production of biofuel feed- stock crops. Tis restriction covers direct land-use changes only. Te revised Fuel Quality Directive, adopted at the same time as the Renewable Energy Directive, is more technical, includes identical sus- tainability criteria, and targets a 6 percent reduc- tion in greenhouse gas emissions from transport fuels by 2020. Because reducing emissions is officially the only
goal of Europe’s biofuel policy, policymakers set a high priority on geting a correct assessment of the greenhouse gas balance sheet of biofuels. Such an assessment would account for the diversion of land use in biofuel production, which can reverse the conclusion about biofuel’s capacity to reduce carbon emissions.6 Land-use changes occur when farmers, domestically and abroad, replace produc- tion historically dedicated to food and feed with
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