Policy options to support biofuel production

Biofuels for use in the transportation sector have been produced on a significant scale since the 1970s, using a variety of technologies. The biofuels widely available today are predominantly sugar- and starch-based bioethanol, and oilseed- and waste oil-based biodiesel, although new technologies under development may allow the use of lignocellulosic feedstocks. Measures to promote the use of biofuels include renewable fuel mandates, tax incentives, and direct funding for capital projects or fleet upgrades. This paper provides a review of the policies behind the successful establishment of the biofuel industry in countries around the world. The impact of direct funding programs and excise tax exemptions are examined using the United States as a case study. It is found that the success of five major bioethanol producing states (Illinois, Iowa, Nebraska, South Dakota, and Minnesota) is closely related to the presence of funding designed to support the industry in its start-up phase, while tax exemptions on bioethanol use do not influence the development of production capacity. The study concludes that successful policy interventions can take many forms, but that success is equally dependent upon external factors, which include biomass availability, an active industry, and competitive energy prices.