International Policies on Bioenergy and Biofuels - Industrial Crops: Breeding for BioEnergy and Bioproducts - page 394

Conclusions
This chapter provides an overview of international biofuel polices and their eco-
nomic impacts on agricultural commodity prices and land use. There has been a
tremendous increase in biofuel production in the recent period (more than 600 %
just over the past two decades). This rapid expansion of biofuel production would
likely not have occurred without government assistance. Biofuel policies are widely
implemented in most developed as well as many developing countries.
A review of the biofuel policies shows that government support is implemented
at all stages of the biofuel production and use chain, from growing agricultural
biomass to consumption of the end product. The policies used internationally show
a number of commonly used measures. In particular, most countries implement
mandates for the blending of biofuels with fossil fuel. This instrument targets
consumption side of the biofuel market by making obligatory consumption of a
certain quantity of biofuels. The second most commonly applied instrument repre-
sents biofuel consumption subsidies (tax credits or tax exemptions). However, due
to the ongoing financial crisis, consumption subsidies are being phased out or at
least reduced in many countries. In contrast, mandates are being gradually
expanded, thus making this instrument the key driver for the future development
of the biofuel sector.
Other important set of instruments represents trade protective measures and
subsidies to feedstock production. These two instruments tend to target the produc-
tion side as the former protects domestic producers against foreign competition,
whereas the latter attempts to reduce the cost of feedstock to biofuel producers.
However, subsidies to feedstock production often form an integral part of the
general agricultural support system targeted at the whole agricultural sector and
not only at biofuel crops. The last group of instruments less frequently used
includes grants and loans, price support, research and development subsidies, and
support for distribution and use. They are targeted on different stages of the biofuel
chain.
The direct impacts of biofuel policies are reflected in the functioning of the
biofuel market itself, as they affect incentives of biofuel producers and consumers.
The main focus in the literature studying the nexus between the biofuel price
formation, the role of biofuel policies, and where the biofuel prices are determined
has been on the United States, Brazil, and the European Union, as these countries
are the largest biofuel producers, accounting for 90 % of global biofuel production.
Biofuel mandates and consumption subsidies were found to determine the biofuel
prices. Empirical findings from the literature suggest that the U.S. and Brazilian
ethanol polices (mostly the U.S. blender's tax credit and Brazilian tax exemption)
have historically shared the price leadership, whereas the European Union appears
to have been price leader in biodiesel market [ 40 , 52 ].
The transition of biofuel policies is further reflected in agricultural market
adjustments. Biofuel prices determine profitability of biofuel production and the
use of agricultural commodities for biofuel feedstock. This interlinkage between