Biofuel Certification Design Flaws

European leaders offer a biofuel certification program which appears to deny markets to biofuels that are produced unsustainably, but this program will not work.  Economic analysis finds that vegetable oil that fails certification for biodiesel use can simply be sold as food, without any reduction in price, to countries like China and India which are major importers of vegetable oil.  In addition, the damage to tropical forest and other ecosystems caused by biofuel demands are indirect, as biofuel expansion raises crop prices for vegetable oil, corn, and wheat.  These higher crop prices cause an estimated 25 million hectares net forest conversion to crop uses, or potentially several times that amount if we consider all forest, savanna, and prairie land conversions.  Biofuel certification programs in Europe and elsewhere fail to confront these indirect price effects, as well as failing to deny markets to uncertified biofuel.

Certifying all vegetable oil, not just the portion used as biofuel, would be far more effective at protecting tropical forests compared to the European Commission approach that just certifies the portion of vegetable oil used as biofuel.  However, any remedy that successfully protects forest and savanna ecosystems will cause additional crop price increases.  Crop producers in exporting countries could see profit increases estimated in the tens of billions of dollars due to the higher crop prices from any program that protects tropical forests and savannas.  The world’s poor, who depend on vegetable oil for calories would experience the majority of these costs.  Researchers find that crop price increases can pose sustainability problems affecting billions of poor people in developing countries.

China, India, and other poor countries spend immense amounts of money trying to protect their consumers from today’s high crop prices, so they are unlikely to participate in vegetable oil certification programs that raise vegetable oil and other basic food prices further.  Without the participation of these major importers of vegetable oil, and of other poor country importers, oil crop certification programs likely will remain ineffective.

Recognizing the above design flaws regarding certification remedies to ecosystem and to hunger problems caused by biofuel subsidies and mandates could lead to consideration of more effective policy options.  These options should include reducing biofuel subsidies and mandates in Europe and reducing biofuel mandates in the U.S.

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Clayton Ogg is the Director, Conservation Economics & Finance for Defenders of Wildlife. Clay directs some of Defenders’ work on incentives to enhance ecosystems and prevent harm. This includes identifying incentive programs that currently work well as well as analysis of ways to improve agriculture programs and other programs to achieve measurable ecosystem outcomes.

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