Liquid Biofuels:Background Brief for the World Bank Group Energy Sector Strategy

(Masami Kojima of the Oil, Gas, and Mining PolicyDivision of the World Bank/Scribd.com) Liquid biofuels are being increasingly used to substitute fuels derived from oil. A number of governments have provided incentives for the liquid biofuel industry, prompted by a desire to increase self-sufficiency in fuel supplies against the backdrop of high and volatile oil prices,support domestic agriculture and promote rural development, and reduce greenhouse gas (GHG)emissions in the light of emerging scientific evidence on the pace of climate change.The World Bank and other United Nations (UN) agencies, the Organisation for Economic Co-operation and Development (OECD), the International Energy Agency (IEA), and numerous other institutions have studied various aspects of liquid biofuels in recent years. Although carried out separately, these studies have arrived at similar conclusions. The purpose of this brief is to inform the forthcoming World Bank Group energy sector strategy by providing a summary of the analyses of liquid biofuels undertaken collectively by UN agencies, notably by the Food andAgriculture Organization (FAO), United Nations Environment Programme (UNEP), and theWorld Bank focusing in particular on government policies. Issues related to liquid biofuels cut across several sectors: agriculture, forestry, water, transport,energy, and environment. Ethanol and biodiesel are the two most common forms of liquid biofuels currently in use. Those in use are also referred to as first-generation biofuels. First-generation ethanol is made from sugarcane, maize, and starch crops, and typically substitutes gasoline; biodiesel is made by reacting methanol with plant oils. Agricultural feedstocks have dominated biofuel production to date, and future feedstocks are likely to be land-based andrequire water for many years to come. As such, the sector that has been affected more than any other to date and for the foreseeable future is agriculture. Among the critical agricultural issuesthat have been studied include the effects of biofuel production on food prices, on small holders, food security, land tenure, and water resource management; trends in crop yields and uptake of agricultural technology in low-income countries; and investment in agriculture. It is not the intention of this brief to examine these agricultural issues in detail, as they are largely outside the energy sector. No new empirical analysis is carried out for this brief, which refers the reader to recent publications. READ MORE