International Policies on Bioenergy and Biofuels - Industrial Crops: Breeding for BioEnergy and Bioproducts - page 387

research and development to be more than $1 billion in the Unites States, $430
million in Canada, and $12 million in Australia [ 25 ].
Support for distribution and use targets at assisting the distribution or consump-
tion of biofuels. The distribution of biofuels may imply additional costs related to
building of new installations to retailers. Higher costs may also be borne by
consumers as they may need to adjust vehicles and other equipment because fuel
with high share of biofuels may require engine and technology adaptation, which
implies additional (fixed) costs to consumers. This has often led policymakers to
provide assistance to cover the additional costs related to distribution or consump-
tion of biofuels [ 49 ].
Subsidies targeted at biofuel production directly lower the cost of producing
biofuels. For example, the U.S. ethanol production subsidies are estimated to be
$1.35 billion in 2008 alone [ 42 ]. By driving a wedge between the biofuel prices
received by producers and blenders, the biofuel production subsidies simulta-
neously increase the market price of the biofuel feedstock and reduce the fuel
price paid by consumers [ 16 ].
Market Impacts of Biofuel Policies
In this section, we provide brief discussion of the implications of biofuel policies
for biofuel price formation, food prices, and land use. As discussed in the previous
section, biofuel policies are a key driver of biofuel markets and thus impact biofuel
price formation. Biofuel prices together with the prices of feedstocks determine
profitability of biofuel production and demand for biofuel feedstock. The
interlinkage between biofuels and their feedstocks is reflected in food price
responses and land use adjustments. These two issues are of primary concern to
society. The recent increases in food prices [ 50 ] have sparked a lively debate and
controversy about the contribution of biofuels and biofuel policies to these devel-
opments. High and more volatile food prices affect food security not only in
developed but especially in low-income developing countries. The impact of
biofuels on land use is a second societal concern; biofuels may have unintended
consequences on the environment by releasing more carbon emissions due to the
expansion of land cultivation around the world. 12
12 The indirect land use change is just one form market leakage of biofuel policies. According to
Drabik and de Gorter [ 18 ], the leakage in the fuel market itself is much bigger.