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OECD warns against biofuels subsidies

By Andrew Bounds in Brussels

Published: September 10 2007 22:28 | Last updated: September 10 2007 22:28

Governments need to scrap subsidies for biofuels, as the current rush 
to support alternative energy sources will lead to surging food 
prices and the potential destruction of natural habitats, the 
Organisation for Economic Co-operation and Development will warn on 

The OECD will say in a report to be discussed by ministers on Tuesday 
that politicians are rigging the market in favour of an untried 
technology that will have only limited impact on climate change.

"The current push to expand the use of biofuels is creating 
unsustainable tensions that will disrupt markets without generating 
significant environmental benefits," say the authors of the study, a 
copy of which has been obtained by the Financial Times.

The survey says biofuels would cut energy-related emissions by 3 per 
cent at most. This benefit would come at a huge cost, which would 
swiftly make them unpopular among taxpayers.

The study estimates the US alone spends $7bn (?5bn) a year helping 
make ethanol, with each tonne of carbon dioxide avoided costing more 
than $500. In the EU, it can be almost 10 times that.

It says biofuels could lead to some damage to the environment. "As 
long as environmental values are not adequately priced in the market, 
there will be powerful incentives to replace natural eco-systems such 
as forests, wetlands and pasture with dedicated bio-energy crops," it 

The report recommends governments phase out biofuel subsidies, using 
"technology-neutral" carbon taxes instead to allow the market to find 
the most efficient ways of reducing greenhouse gases.

"Such policies will more effectively stimulate regulatory and market 
incentives for efficient technologies," it said.

The study, prepared for the OECD's round table on sustainable 
development, will be discussed in Paris on Tuesday and on Wednesday 
by ministers and representatives of a dozen governments, including 
the US. Also attending will be Ángel Gurría, the OECD 
secretary-general, scientists, business representatives and 
non-governmental organisations.

The survey puts a question mark over the European Union's plan to 
derive 10 per cent of transport fuel from plants by 2020. It says 
money saved from phasing out subsidies should fund research into 
so-called second-generation fuels, which are being developed to use 
waste products and so emit less CO2 when they are made.

Today, only three kinds of biofuels are preferable to oil, the study 
says: Brazilian sugar, which converts easily to ethanol, the 
by-products of paper-making, and used vegetable oil.

The EU has said only biofuels that meet as yet undefined standards 
for sustainability will count towards its target to get a tenth of 
transport fuel from plants by 2020. Tariff discrimination on 
sustainability grounds is illegal under World Trade Organisation 
rules and the authors call for talks at the WTO to set up a global 
certification scheme.

Adrian Bebb, biofuels campaigner with Friends of the Earth said: "The 
OECD is right to warn against throwing ourselves headfirst down the 
agrofuels path."

Copyright The Financial Times Limited 2007

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