Bioenergy economics and policies Hans van Meijl, Edward Smeets and David Zilbermann Ravello, June , Hans van Meijl, LEI Wageningen UR

Contents 1. Introduction 2. Key findings 1. Bioenergy developments 2. Bioenergy policies 3. Conceptual framework 3. Arguments for policy intervention 4. Economic impact of policies 5. Conclusions

 740 pages

Background and aim of paper  Recent bioenergy developments, often induced by policies, lead to a greater interconnectedness between energy and agricultural markets and influenced relative food and feed prices and land- use changes.  To ensure that bioenergy policies truly contribute to sustainable development, it is crucial to gain insight in the economic impacts of bioenergy systems and the resulting direct and indirect effects.

…and to process renewable raw materials into value added products in the food, bio-based and energy industries. © Biopact The Bioeconomy Using research and innovation to produce renewable raw materials sustainably in agriculture, forestry, fisheries and aquaculture… 1. Bioeconomy

World Bioenergy use by sector and use of traditional biomass in 2010 and 2035 (IEA)

Feedstock use for biofuels (kt), 2012 Source: OECD (2013)

Frequency of policy measures to promote renewable power energy REN 21 (2013).

Global subsidies to renewables-based electricity and biofuels by technology & fuel Source: IEA, World Energy Outlook (2012).

Fuel ethanol, corn and gasoline prices, by month Source: USDA, Economic Research Service, US Bioenergy statistics.

Conceptual Systems Analysis Framework BBE

Arguments for policy intervention  reducing dependence on non-renewable resources and increasing energy security ● Critics: difficult to replace large part of oil consumption by bioenergy  mitigate climate change effects: ● LCA often positive impact on emissions ● However, do not take indirect effects into account ● ILUC: recent enhanced model results lower iLUC ● Searchinger et al (2008, 104 gr CO2 eq) ● Laborde et al (2011, 7 gr CO2 eq) ● Rebound effect: higher of incentive based policies than quantity based policies (impact price)

Arguments for policy intervention (II)  Improving the balance of trade ● Driver for US and Brazil (Zilberman, et al 2014)  Enhancing economic growth and creating jobs ● Opportunity costs of using production factors ● Employment: labour intensity is key ● Often biobased technologies more labour intensive than fossil based technologies ● GDP impact: Competitiveness of biobased technology versus fossil based is key ● Break-even points ● Fossil energy prices ● Meijl: Example of Malaysia

Malaysia: Palm residues Trunks, fronds, empty fruit bunches, fibers, palm kernel shells.... currently “NOT” used...! Empty fruit bunches Palm kernel shells Palm fronds Palm fibres

Economic results GDP effect/biomass volume (%/Mt) Bioethanol0.013 Biochemicals0.038 Pellets0.012 Total revenue (quantity x price) ca. 30 billion RM or 2% of the GDP = direct GDP effect = similar to NBS NET GDP effect, incl. opportunity costs is only 0.5% (exc. electricity) and 0% (inc. electricity)

Malaysian GDP (% change) in 2030 of 6.6 Mt biomass chemicals project

Arguments for policy intervention (III)  bioenergy ensuring food security ● The food crisis of led to the re-emergence of the old food-versus-fuel debate ● Worldbank\IFPRI: biofuels play key role ● Recent evidence role is limited (Baffes&Denis, 2013)   managing natural resources sustainably

Economic impact of government policies  Demand pull ● FiT and excise tax credits ● Subsidies=> lower prices (rebound higher) ● Consumer pays => higher price ● Quota => higher price (rebound lower)  Supply push ● Knowledge (market failure, Schumpeter): knowledge and R&D spillovers ● GMO (Qaim and Zilberman 2003) could help increasing yields and more sustainable production ● Concerns about environmental sustainability ● Regulations banned GMO (EU & Africa)

Economic impact of government policies (II)  Regulation good for the protection of society  excessive regulation may be harmful to technological innovation ● given the importance of private sector investment in the development of new biotechnologies  Critics: ● Focus economics and technology, at expense ethical questions ● technology-knowledge fix thinking\visions ● Agro-ecological and glocal visions

Conclusions  Policies and energy prices are key drivers for current bioenergy and the emergent bioeconomy  Bioenergy is part of a larger transition to a bioeconomy.  Technological change and full biomass utilisation might create a competitive industry  A coherent policy package can temporary stimulate an immature industry and regulation can deal with indirect effect of the bioeconomy.  Policies more effective if directly connected to a target. E.g. CO2 taxes to reduce emissions.

Conclusions (II)  The bioeconomy is an immature industry which may justify temporary polices to stimulate its development.  Regulation could deal with the indirect effects of bioenergy such as social and environmental effects (land, water, biodiversity). ● Challenge: development of a regulatory framework that limits social and environmental externalities and, at the same time, does not curb innovation.  To achieve broad public support the general public and key stakeholders should be involved in an open and informed participatory dialogue.