Study calls for halt to biofuels subsidies, cites market distortion, food price increases and marginal emissions benefits

Two researchers have submitted a draft paper to the OECD Roundtable on Sustainable Development – an information exchanging forum for Ministers of Trade, Finance and the Environment –  calling for an end to biofuels subsidies. The report says that biofuels are an untried technology that can have only limited effect on the climate and will cause a rapid rise in food prices. The study’s authors concluded that US ethanol supports cost $500 for every ton of carbon dioxide removed from the atmosphere — and almost ten times this amount in the EU — and suggested instead the imposition of “technology-neutral” carbon taxes.

Note: The Financial Times had obtained and published a copy of the report, and the story is now  receiving widespread press coverage as “The OECD says …”, but the paper has not been seen or endorsed by senior OECD officials.

It says biofuels could lead to some damage to the environment. As long as environmental values are not adequately priced in the market, there will be powerful incentives to replace natural eco-systems such as forests, wetlands and pasture with dedicated bio-energy crops, it says.

The report recommends governments phase out biofuel subsidies, using “technology-neutral” carbon taxes instead to allow the market to find the most efficient ways of reducing greenhouse gases.

”Such policies will more effectively stimulate regulatory and market incentives for efficient technologies,” it said.
The study found that only Brazilian sugar, paper-making byproducts and used vegetable oil are suitable feedstocks for biofuel production.

Previously, the OECD released its 2007-2016 Agricultural Outlook, which found that “increased feedstock demand for biofuel production, and the reduction of surpluses due to past policy reforms, may keep prices above historic equilibrium levels during the next 10 years.” The OECD wrote that “higher commodity prices are a particular concern for net food importing developing countries as well as the poor in urban populations, and will evoke on-going debate on the “food versus fuel” issue….The expectation that world market prices have attained a higher plateau may facilitate further policy reform away from price support. This would reduce the need for border protection and would provide flexibility for tariff reductions.”

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