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close this book Application of biomass-energy technologies
close this folder VII. Perceived problems, solutions and policy options
View the document A. Environmental impacts
View the document B. Food or fuel?
View the document C. Land availability
View the document D. Raw-material supply
View the document E. R&D and technology transfer
View the document F. Social factors
View the document G. Economics
View the document H. Policy
View the document I. Institutions

H. Policy

Although economics play a significant role in biofuel production and use, it is often the case that clear political objectives and commitment will lead to success, and the opposite usually results in failure. In fact, successes and failures are usually the consequence of a mix of economic, political and technical factors. Government intervention should be largely regulatory to create favourable conditions, and the private sector should be directly involved. The government should, in particular, play a prime role in providing clear objectives and commitment, developing an appropriate regulatory and legislative framework, providing financial and economic incentives etc. On the other hand, too much government intervention, either directly or indirectly, e.g., through regulation, taxation, subsidies etc., will distort economics.

An important problem is that biomass energy is not taken seriously enough by planners and politicians because its main use is in the rural areas of developing countries and it is a diffuse and difficult energy problem to deal with. Biomass is generally and wrongly regarded as a low-status or inferior fuel for poor people only, and carries little or no prestige among decision-makers. It is, therefore, rarely included in energy statistics, and when it is, it tends to be downgraded. The fact that it also provides an important fuel source for the urban poor and many rural and small-scale industries is also infrequently recognized. Thus policy interactions are usually based on imprecise information and distorted subsidies for alternative fuels. For example, an FAO (1990) report on Asian countries notes that many central governments do not appear fully to realize the significance of wood energy use in rural industries, the importance of these industries to national economies, the viable long-term energy alternatives for them, and the opportunities presented by the potential development of biomass fuel for industry.

Constraints the implementation of biomass projects, apart from lack of appropriate and consistent data to allow informed decision-making, include: lack of skilled and experienced advisors; scepticism born of past disappointments; and failure of scientists etc. to transfer the results of technical assessments to the energy policy makers in ways which influence energy projections and implementation (NRC, 1982). Biomass-based technologies are only seen as possible longer-term solutions with delayed benefits. Governments also do not normally consider biomass energy as capable of significantly reducing a country's fossilfuel requirements (although it can provide most of the energy for the poor), unless largescale, very specific projects are implemented. Finally, other high-technology projects receive more attention for political and prestige reasons. These factors inevitably result in most biomass-energy-related projects receiving low priority and/or ineffective implementation.

Developing countries tend to follow the same economic development philosophy as the industrialized countries. The local environmental impacts of cheap, dirty energy are seen as a necessary trade-off for meeting basic human needs. Thus prevailing energy policies promote fossil fuels to the detriment of most other energy resources, particularly for verylarge-scale developments. A large number of developing countries have maintained energy pricing policies which discourage investment in renewable energy, by artificially depressing the price of electricity and liquid fuels, e.g., in India where the grid electricity tariff is only a fifth of the cost of rural energy provision (Bhatia, 1990). National pricing policies of conventional sources of energy can greatly influence the pace of introduction of new energy technologies. Thus initial political and financial support for renewable energy is an important prerequisite to the market development of these technologies (Goldemberg et al, 1992; Reddy and Goldemberg, 1990).

The private sector is unlikely to invest in renewable technologies as a whole because the benefits are long-term, energy costs will usually not be significantly lower than those of conventional energy and the sector does not have to consider the external benefits. It is imperative that a balanced system of taxes and subsidies is put in place to ensure that new energy sources are not discriminated against. According to Grubb (1990) policy changes need to be made to change energy-consumption patterns as market forces alone would not be sufficient, e.g., the use of carbon taxes is widely advocated as the most efficient and flexible way of limiting carbon emissions. The preferred policy instruments should reflect differences in endowments of renewable resources, stages of economic development, and cultural characteristics, and should be aimed at promoting sustainable development (Johansson et al, 1992).

Johansson et al (1992) cite the following policy initiatives as necessary to encourage investment in renewables:

• Remove subsidies from conventional fuels and/or give renewables equivalent incentives.

• Taxes, regulations and other policy instruments should be used to include the external costs in market prices.

• Increasing government support for renewables R&D, which should be carried out in close cooperation with the private sector.

• Regulation of electric utilities to encourage renewables.

• Policies for the development of biofuels must be closely coordinated with national agricultural and land-restoration programmes.

• Creation/strengthening of national institutions to implement/promote renewables.

• International development funds for the energy sector should be directed increasingly to renewables.

• Creation of a strong international institution to assist and coordinate increased use of renewables, support assessment of energy options, and support R&D centres.

The role of government incentives and energy security in a number of following examples can have relevance to many other countries. India, for example, is a country where successive governments have recognized the importance of small-scale production. However, despite official interest in the development of small-scale industries, Indian policy-making and investment has generally promoted Large-scale and capital-intensive methods of production which is readily seen in the energy sector. According to Reddy and Goldemberg (1990) the small-scale sector has received only about 2 per cent of the total public-sector outlay since 1966, in contrast to about 22 per cent for the large-scale sector.

Comparing the ethanol programmes in Kenya, Malawi and Zimbabwe, despite the initial similarities in their socio-economic setting and plant-specific technical parameters, Kenya followed different implementation routes from Malawi and Zimbabwe, with sharply different results. For example, the Madhavani project in Kenya was approved by the Government without adequate evaluation of the key adaptive conditions such as the availability of raw material before the project was approved. In Malawi and Zimbabwe the availability of molasses was guaranteed before construction was started. The Malawi and Zimbabwe projects were funded entirely privately, the State playing a largely regulatory role to create the ideal conditions for the project to succeed.

The Brazilian ethanol production case demonstrated the political issues, and the perseverance with which governments must act to assist the establishment of an alcohol fuel programme. However, while subsidies designed to encourage the establishment of the sugarcane industry were effective, they had longer-lasting impacts in suppressing entrepreneurial development of the industry. As with other new enterprises, political, social and institutional factors and market penetration barriers all play a key role in the development and introduction of a bioethanol fuel programme. Without the stabilizing influence of a coherent public sector, uncertainty in the market will be so great as to discourage investment in non-petroleum fuels. Until recently, the development of alternative transport-fuels policy has seen emphasis placed on technical and economic issues. But governments are beginning to recognize the importance of "non-technical" aspects of energy policy.