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 a roundup of news, views and ideas on subsidies and sustainable development                                                                                           Issue 35, January 2010

   COMMEnTaRy                             PaGE 1                          Subsidized U.S. biodiesel: the never-ending story
   PAGE 1 Subsidized U.S. biodiesel: the
   never-ending story
   PAGE 2A grain of salt needed with
   promises of cheap desalination

   analysis                               PaGE 4

   PAGE 4 India’s policy research shows
   way to energy subsidy reform, so far             COMMENTARY:
                                                    Subsidized U.S. biodiesel: the never-ending story
   nEWs                                    PaGE 5
                                                    by By Russ Finley*
   PAGE 5Car-scrapping schemes boost                In 2004 the U.S. Congress created             a specific mandate for biodiesel, left
   European market in 2009, but at what
                                                    a USD$ 1/gallon (US$ 0.264/litre)             open a glaring loophole — ironically,
                                                    blenders’ tax credit for biodiesel that was   one that Congress was in no hurry to
   PAGE 6 Iran parliament rejects call to           slated to expire in 2006. But in 2005 it      close. Although (as its title attests) this
   withdraw subsidy reform bill                     extended the tax credit through the end       act was passed ostensibly to reduce
                                                    of 2008 and, before that year was up,         American dependence on foreign oil, it
   sTUDiEs anD EVEnTs                      PaGE 6
                                                    extended it again, through 2009.              did not disallow the export of subsidized
   PAGE 6 Subsidy Scope: U.S. motorist                                                            biofuels.
   fees contribute decreasing share of              Predictably, last autumn, legislation
   highway funding                                  was introduced to extend the tax
   PAGE 7 ECIPE    conclude EU biofuels             credit for yet another year, through
   policy is costly, protectionist and risks        2010. The bill passed the U.S. House             “Our biodiesel policy is a prime
   violating WTO obligations                        of Representatives but stalled in the            example of how government
                                                    Senate. Consequently, since 1 January
                                                    2010, a number of biodiesel operators,           subsidies and mandates can
                                                    unable to find buyers for their product          turn a rational market into
                                                    at a cost price, have suspended
                                                                                                     a nonsensical, confused,
                                                                                                     unpredictable, spiral of waste,
                                                    Currently, the U.S. biodiesel industry
                                                                                                     all at the expense of taxpayers
                                                    is estimated to be operating at only
   Contact:                                         15 percent of its rated capacity. That           and investors.”
   Christopher Beaton
                                                    percentage would undoubtedly be even
   International environment House 2                smaller if it were not for the subsidies      American producers of biodiesel were
   9 chemin de Balexert
   1219 Châtelaine
                                                    and tax exemptions still provided by a        quick to capitalize on this loophole
   Geneva switzerland                               number of states, and for the various         and were soon exporting a majority
   Phone +41 22 917-8748
                                                    government mandates (state as well            of their product to Europe, where
   Fax +41 22 917-8054                                 as federal), that continue to force the       it fetches a higher price than in the
                                                    blending of biodiesel into the nation’s       United States, thanks to the partial
   Disclaimer:                                      fuel supply regardless of cost. Because       exempting of biodiesel from fuel taxes
   subsidy Watch is a publication of the
   International Institute for sustainable
                                                    taxpayers cannot opt out of buying a          in many countries, and the edge that
   Development’s Global subsidies Initiative.       blended fuel, mandates allow blenders         dollar per gallon blending credit gave
   subsidy Watch articles do not necessarily
   reflect the views of the IISD, its partners or
                                                    to pass on at least some of their costs to    U.S. producers over their European
   its funders                                      consumers, creating a de facto subsidy        rivals. This practice was ended in
                                                    via a captive, artificial market.             March 2009, when the European
                                                                                                  Commission imposed anti-dumping and
                                                    The Energy Independence and                   countervailing duties on imports of U.S.
                                                    Security Act of 2007, which created           biodiesel.
                                                                                                                         continued on page 2

a roundup of news, views and ideas on subsidies and sustainable development

                                                                                                                  Issue 35, January 2010

   Subsidized U.S. biodiesel...                                                                                  continued from page 1

   The USA’s biodiesel policy is a prime                                                    the attendant loss to the economy by
   example of how government subsidies                                                      its failure, would have been small to
   and mandates can turn a rational                                                         non-existent without the government
                                                   “Government is analogous to
   market into a nonsensical, confused,                                                     attempting to pick winners for its
   unpredictable, spiral of waste, all at the      a referee on a football field.           consumer-citizens. Competing within the
   expense of taxpayers and investors.             Referees exist for a reason, and         rules set by government is what markets
   And when I say investors, I’m not just                                                   do best. Government is analogous to a
   referring to venture capitalists who            it isn’t to decide who gets to           referee on a football field. Referees exist
   fully understand and accept the risks.          win.”                                    for a reason, and it isn’t to decide who
   I live in Seattle. At the height of the                                                  gets to win.
   biodiesel craze, the City of Seattle
   Employee’s Retirement Fund invested          previously legislated mandate deadlines,    The industry is, not surprisingly, lobbying
   US$ 10 million dollars in the largest        the plant started producing biodiesel       to re-instate the blenders’ credit,
   biodiesel refinery on the West Coast,        again in 2009 for a brief period until      arguing that it invested in good faith that
   which shortly thereafter stopped             an untimely explosion shut the refinery     government support would continue.
   production when its operating capital        down ... again.                             Did they not know exactly when the tax
   ran out. Thanks in large part to local                                                   credit was slated to end? Were they not
   State government purchases to meet           The investment in this industry, and        gambling as entrepreneurs in assuming
                                                                                            that it would be continued?
                                                                                                                   continued on page 7
   A grain of salt needed with promises of cheap desalination
   by Peter Gleick, President, and Heather Cooley, Senior Research Associate, Pacific Institute, Oakland, California

   The irony of water scarcity on a planet                                                  US$ 0.92 per cubic metre (m3)), even
   70% covered by ocean does make                                                           for large, efficient plants – and could
   us gaze longingly at the seas as the            “From a technological                    be as much as US$ 9.00 to US$ 10.00
   ultimate answer. The public, politicians                                                 per kgal (US$ 2.38–2.64 per m3). Only
   and water authorities continue to hope          standpoint, desalination works
                                                                                            the low end of this range just touches
   that cost-effective and environmentally         – but in dollars, energy use             the price of water that might be paid
   friendly desalination – the removal                                                      by urban water users, rarely more than
   of salt from seawater to make it
                                                   and environmental impacts, it
                                                                                            US$ 1.00 to US$ 3.00 per kgal (US$
   drinkable – will come to the rescue of          is an expensive way to meet              0.26–0.79 per m3). And it is far above
   water-scarce regions. In most places,                                                    the price typically paid by farmers in
                                                   freshwater needs.”
   however, desalination is a technology                                                    the western United States, whose
   whose time has not yet come.                 desalination works – but in dollars,        costs may be as low as US$ 0.20 to
                                                energy use and environmental                US$ 0.40 per kgal (0.05–0.11 per m3),
   Desalination is currently in use in          impacts, it is an expensive way to meet     although this is to some extent due to
   approximately 130 countries. The only        freshwater needs. The actual price          federal and state investment in major
   significant capacity is in the Persian       of desalinated water is site-specific.      water supply and delivery systems.
   Gulf, on islands with limited freshwater     It depends on a number of factors,
   supplies, and in selected other              including labour costs, energy sources,     In part, costs are high because
   locations where water sources are            land availability and the salinity of the   seawater desalination is among the
   limited and the public is willing to pay     water to be purified. Experience to date    most energy-intensive water supply
   high prices. The installed desalination      in California suggests that it cannot be    options available. This also means
   plants have the capacity to provide          delivered for anything less than the cost   that relying on it increases the
   just three one-thousandths – 0.3% – of       of production, which is unlikely to fall    water supplier’s exposure to energy
   total world freshwater use.                  below the range of US$ 3.00 to US$          price variability and energy price
                                                3.50 per thousand gallons (kgal ; in        increases over time. Desalination has
   From a technological standpoint,             standard international units, US$ 0.79 to
                                                                                                                   continued on page 3

a roundup of news, views and ideas on subsidies and sustainable development

                                                                                                                 Issue 35, January 2010

   A grain of salt needed with promises...                                                                       continued from page 2

   environmental impacts that must be           have recently been proposed.                profits for private investors. Compared
   understood and mitigated as well.                                                        with more economical water sources of
   These include effects associated with        Even where proponents say it is             untapped conservation and efficiency,
   the construction of the plant and,           possible to produce freshwater at           recycled water, capturing storm water,
   especially, its long-term operation,         competitive prices, experience shows        and transferring some water from use in
   including the effects of withdrawing         that these claims should be viewed          agriculture, the experience with Carlsbad
   large volumes of water from the ocean        critically. Projections can change once     suggests that desalination is still too
   and discharging large volumes of             investments are underway, leading to        expensive for California. Furthermore,
   concentrated brine. Indirect impacts         higher than expected user costs or a call   California’s coastal resources, including
   associated with the substantial use of       for subsidisation. Poseidon Resources,      ocean waters, are part of the public
   energy must also be considered. There                                                    commons and are protected under the
   are some cases where desalination                                                        public trust doctrine, and it is not clear
   can provide environmental benefits by                                                    whether public funding should be used
                                                   “In many parts of the world,
   reducing withdrawals from rivers and                                                     to develop public resources for a private
   streams – although usually there is             alternatives to desalination –           investor.
   no binding mechanism to ensure that             such as improving conservation
   these gains are actually delivered.                                                      Desalination facilities should be
                                                   and efficiency, accelerating             approved only where water agencies
   Explicit and implicit subsidies may             wastewater recycling                     have implemented all of the more cost-
   also affect the price. For example, in                                                   effective conservation and efficiency
   Israel the Ashkelon desalination plant is       and reuse, purifying low-                measures already. Public subsidies for
   constructed on land provided at no cost         quality local water sources,             desalination plants are inappropriate
   by the Israeli government. The trouble-                                                  unless explicit public benefits are
   plagued Tampa Bay desalination plant
                                                   encouraging regional water               guaranteed, such as restoration of
   in the United States was provided low-          transfers, and implementing              ecosystem flows. Most of the time, the
   cost capital by a Floridian regulatory                                                   economic evaluations of desalination
                                                   smart land-use planning – can
   entity but is ultimately producing water                                                 presented to regulators and the
   at US$ 3.38 per kgal (US$ 0.89/ m3) –           provide the same freshwater              public do not adequately account for
   nearly double the initial estimate. In the      benefits at far lower economic           the complicated benefits and costs
   United Arab Emirates, the Taweelah A1                                                    associated with issues of reliability,
   plant is provided energy at a subsidized        and environmental costs.”                quality, local control, environmental
   cost of US$ 0.02 per kWh. Given that it                                                  effects and impacts on development.
   uses a process called reverse osmosis,       the group who initiated Florida’s Tampa     Until they do, the true cost of
   where typically one-third to one-half of     Bay Project, repeatedly claimed it would    desalination will remain a mystery.
   the water cost derives from the use of       bear all of the financial burden and risk
   electrical energy, this is a substantial     associated with the plan to desalinate      The Pacific Institute (www.pacinst.
   subsidy.                                     ocean water at an old power plant in        org), based in Oakland, California, is
                                                the city of Carlsbad, California and sell   a nonpartisan research institute that
   In many parts of the world, alternatives     it to public water agencies. But now it     works to create a healthier planet and
   to desalination – such as improving          says that in order to be commercially       sustainable communities. Through
   conservation and efficiency,                 viable, the project needs massive public    interdisciplinary research and partnering
   accelerating wastewater recycling and        subsidies of at least US$ 530 million       with stakeholders, the Institute produces
   reuse, purifying low-quality local water     in tax-free state bonds and an annual       solutions that advance environmental
   sources, encouraging regional water          subsidy of US$ 250 per acre-foot (US$       protection, economic development, and
   transfers, and implementing smart            0.20/ m3) of water produced from the        social equity. The Pacific Institute Water
   land-use planning – can provide the          Metropolitan Water District of Southern     Program seeks to transform the way
   same freshwater benefits at far lower        California.                                 societies perceive, manage, and use
   economic and environmental costs.                                                        freshwater resources for more effective
   This is certainly true in California,        These are public subsidies to fund a        and sustainable strategies for meeting
   where several new desalination plants        private project designed to produce         human and environmental needs for

a roundup of news, views and ideas on subsidies and sustainable development

                                                                                                                     Issue 35, January 2010

   India’s policy research shows way to energy subsidy reform, so far unheeded
   The central Indian government began                                                         the oil companies for the difference in
   subsidizing petroleum derivatives as a                                                      the consumer price and the import parity
   result of the oil-price shocks of the 1970s,                                                price has led to shockingly high rate of
   in order to soften the impact of oil price        “In order to reduce these                 corruption in the petroleum distribution
   swings on the poor. According to several          problems the TERI study                   agencies.”
   studies conducted in the last decade, it
   has become increasingly clear that the            recommended that the                      A high percentage of the kerosene that
   government’s energy-subsidy programs              government stop producer                  is supposed to be distributed under
   are a costly way to achieve this goal and                                                   the subsidy system is diverted for the
                                                     subsidies and instead use ‘smart
   are not effective in meeting the needs of                                                   adulteration of higher-priced diesel even
   the less well-off.                                cards’, special debit cards that          at the depot level, leading to a leakage
                                                                                               of 44% which amounts to approximately
                                                     can be used to transfer cash
   In 2009, the burden of India’s energy                                                       US$ 2.29 billion, found the Committee.
   subsidy on the national budget climbed            directly to low-income Indians. ”
   steadily with petroleum prices. In                                                          “If kerosene is to be subsidised as a
   a statement to the Parliamentary                                                            cleaner fuel, the only way of preventing
                                                  Ruchika Chawla, Associate Fellow at
   Consultative Committee in December,                                                         this pernicious adulteration and the
                                                  TERI’s Centre for Research on Energy
   Minister for Petroleum and Natural Gas                                                      widely prevalent corruption is to make
                                                  Security and one of the authors of the
   Mr. Murli Deora estimated India’s energy-                                                   the price of kerosene and diesel very
                                                  study, confirmed for Subsidy Watch
   subsidy spending at the end of the current                                                  close and give the subsidy to the
                                                  that the general distribution of benefits
   fiscal year would be around US$ 9.76                                                        consumer directly by way of coupons or
                                                  conferred by LPG subsidization remains
   billion (based on December petroleum                                                        smart cards,” it concluded.
   prices). Although this is less than half
   the amount spent on energy subsidies in                                                     More concretely, the Parikh Committee
                                                  “A similar situation is seen in the
   the previous fiscal year, due to the lower                                                  recommended that the best way to
                                                  kerosene subsidies as well, where a
   oil prices caused by the world economic                                                     improve access to kerosene and LPG
                                                  large portion of subsidized kerosene is
   slowdown, the total still amounts to 4.5%                                                   for poor consumers would be to create a
                                                  siphoned off to the black market, where
   of the country’s estimated US$ 219 billion                                                  targeted entitlement to energy products,
                                                  either it is sold at higher prices or used
   budget.                                                                                     equal to 30 kilowatt-hours and 6 kg of
                                                  to adulterate diesel,” added Mr. Chawla.
                                                                                               cooking gas, or an equivalent amount
   Four petroleum products are subsidized                                                      of kerosene to cover one or both needs.
                                                  In order to reduce these problems the
   by the central government: gasoline,                                                        Like TERI, it also proposed managing
                                                  TERI study recommended that the
   diesel, domestic liquid petroleum gas                                                       distribution with smart cards, specifically
                                                  government stop producer subsidies and
   (LPG) and kerosene. LPG and kerosene                                                        designed to purchase entitlements.
                                                  instead use ‘smart cards’, special debit
   subsidies make up two-thirds of the
                                                  cards that can be used to transfer cash
   spending, intended to help lower-income                                                     Acknowledging that smart cards are not
                                                  directly to low-income Indians.
   Indians gain access to cooking fuel. Yet a                                                  a fool-proof system, the report noted
   2005 study by The Energy and Resources                                                      that they have been used before in India
                                                  Similar conclusions were reached in
   Institute (TERI), a New Delhi-based non-                                                    and are subject to black market sale.
                                                  August 2006 in a prominent study
   governmental organisation promoting                                                         In order to prevent this, the Committee
                                                  conducted by a government-appointed
   sustainable development, found that                                                         suggested using cards with physiological
                                                  committee, the Planning Commission of
   the kerosene and LPG subsidies are                                                          identification, though adding, “even if a
                                                  India’s Expert Committee on Integrated
   inefficient and easily redirected to                                                        household decides to sell the entitlement
                                                  Energy Policy, chaired by Dr. Kirit S.
   unintended purposes: “76% of the LPG                                                        and not use power, LPG and kerosene,
   subsidy goes to urban areas with 25% of                                                     it would still be welfare improving.”
   [India’s] total population, and... 52% of
                                                  According to the Parikh Committee “The
   this urban subsidy is enjoyed by the top                                                    The central government has yet to
                                                  current delivery system of [the] kerosene
   27% of households.”                                                                         implement an energy subsidy smart card
                                                  subsidy by keeping the price of kerosene
                                                                                               system, though pilot programs have
                                                  to the consumer low and compensating
                                                                                                                      continued on page 5

a roundup of news, views and ideas on subsidies and sustainable development

                                                                                                                Issue 35, January 2010

   India’s policy research shows...                                                                            continued from page 4

   been considered in the past. According      subsidy was put on hold in May 2007,        March of 2007, but have remained
   to Mr Chawla, one of the hurdles has        because the states selected to take part    in place. As recently as September
   been a lack of coordination between the     in the pilot – Bihar, Uttarakhand and       2009, the central government delayed
   central and state governments, caused       Maharashtra – wanted the scheme to          another planned withdrawal of the
   by disagreement over who should be          include families above the poverty level,   LPG subsidy due to the potential
   entitled to the aid.                        according to Indian newspaper Mint.         unpopularity of such a move. In the
                                                                                           same month, India and the other G-20
   A pilot project that was to use smart       The kerosene and LPG subsidies were         member countries pledged to phase
   cards for the delivery of the kerosene      originally supposed to be removed by        out fossil-fuel subsidies in the medium-

   Car-scrapping schemes boost European market in 2009, but at what cost?
   The European Automobile                     standards and reduce the resale of          contribute to environmental goals.
   Manufacturer’s Association (ACEA)           Western Europe’s older, inefficient
   reports that passenger car sales in the     vehicles to consumers in Central and        In some cases, it is pointed out that
   first eleven months of 2009 show that       Eastern Europe. Three EU countries          the majority of new vehicles being
   car-scrapping schemes – programs                                                        purchased are foreign brands, and car-
   in which vehicle owners are given                                                       scrapping schemes may encourage
   money by the state to trade in old              “According to the ACEA,                 consumers to bring car-purchase
   vehicles for new, more efficient ones                                                   decisions forward in time, simply
   – are a successful way to support car           these programs boost the                shifting a decline in sales to a later
   industries struggling in the recession.         ailing industry, improve                date. Moreover, support programs can
                                                                                           benefit the car industry at the expense
   As of November, the ACEA states                 environmental and safety                of other economic sectors struggling
   that thirteen such schemes exist                standards and reduce the                in the recession. The GSI also argue
   in EU countries, largely in Western                                                     that effects on the environment are
                                                   resale of Western Europe’s
   Europe: Austria, Cyprus, France,                                                        demonstrated to be dependent on
   Germany, Greece, Italy, Luxembourg,             older, inefficient vehicles...”         the design of the scheme in question.
   the Netherlands, Portugal, Romania,                                                     In Spain and France, for example,
   Slovakia, Spain and the UK. It has          – Poland, the Czech Republic and            consumers only receive support if
   produced an overview summarizing            Hungary – are said to be discussing         they purchase new cars with relatively
   the details of the programs in each         the possibility of introducing their own    stringent fuel-efficiency criteria. By
   country, including the grant paid           programs in the future.                     contrast, consumers in Germany and
   per consumer, the age and engine-                                                       the U.K. receive support regardless of
   efficiency requirements for new-car         However, an analysis of car-scrapping       the fuel-efficiency of the new vehicle
   purchase, the total money allocated to      schemes carried out for the Global          purchased.
   the scheme and its lifetime.                Subsidies Initiative (GSI) and reported
                                               in a Policy Brief in December 2009,         For more information about car-
   The ACEA argues that countries with         (“Car-scrapping schemes: an effective       scrapping schemes in the European
   a car-scrapping scheme often fared          economic rescue policy?”), provides         Union, see the ACEA’s website: http://
   better than others, and recommends          another perspective on these kinds
   that, “all 27 EU Member States should       of policies. Reviewing programs in
   adopt fleet renewal schemes to soften       Germany, Spain, France, the U.K. and        The GSI’s “Car-scrapping schemes:
   the current decline in motor vehicle        the U.S., it concludes that although        an effective economic rescue policy?”
   sales”. According to the ACEA, these        such schemes may benefit the car            can be accessed at: http://www.
   programs boost the ailing industry,         industry, it is less clear how they
   improve environmental and safety            affect a nation’s economy overall or        carscrap.pdf

a roundup of news, views and ideas on subsidies and sustainable development

                                                                                                                Issue 35, January 2010

   Iran parliament rejects call to withdraw subsidy reform bill
   Controversy continues to surround                                                       proposes phasing out subsidies
   Iran’s bill on subsidy reform, with the                                                 on energy, water, food and some
   government and parliament unable                “According to the Tehran                services over the next five years.
   to agree on how the saved revenues                                                      A portion of the saved revenues
   should be managed. Tension has
                                                   Times, ‘informed sources’               is intended to fund a targeted
   simmered since the parliament                   report that 50% of the                  cash-transfer system that will help
   introduced an amendment to the bill                                                     low-income families cope with the
                                                   revenues will be used to fund
   in November 2009, which established                                                     increased prices. According to the
   that revenues would be saved in a               these cash-transfers, 30%               Tehran Times, ‘informed sources’
   special account for public spending.            will “be paid to producers”             report that 50% of the revenues will
   The government did not want any                                                         be used to fund these cash-transfers,
   restrictions to be placed on usage              and 20% used to “cover state            30% will “be paid to producers” and
   of the funds, and on these grounds              expenses””                              20% used to “cover state expenses”.
   requested that the entire bill be
   withdrawn.                                                                              The political motivation behind
                                               will be resolved. In the meantime,          the reform is said to be concern
   On 3 January the Iranian parliament         approval of the bill is still pending       over potential trade sanctions. In
   rejected the government’s request and,      from the Guardian’s Council, Iran’s         December 2009, the U.S. House of
   two days later, approved the creation       legislative ‘watchdog’. The parliament      Representatives passed legislation
   of an “Organisation of Targeted             is currently revising the bill to rectify   allowing sanctions to be levied on
   Subsidies”, to be responsible for           problems previously identified by the       companies supplying fuel to Iran.
   spending the saved revenues.                Council. The disagreement takes place       According to Al Jazeera, Nancy
                                               against a background of renewed             Pelosi, the House Speaker, said the
   Iran’s President Mahmoud                    political protest against the regime.       United States should “use all the tools
   Ahmadinejad has previously                                                              at our disposal, from diplomacy to
   threatened to withdraw the bill himself,    As reported in the December edition         sanctions, to stop Iran’s march toward
   and it is not yet clear how the situation   of Subsidy Watch, the reform bill           nuclear capability.”

   Subsidy Scope: U.S. motorist fees contribute decreasing share of highway funding

   According to an analysis conducted          concludes that the percentage of            to fuel prices, and engines becoming
   by the Pew Charitable Trust’s Subsidy       revenue coming from road users was          more fuel-efficient.
   Scope project at the end of November        51% in 2007, compared with 61% in
   2009, road user fees paid in the            1997 and 71% in 1967. The remaining         The summary of findings and the
   United States – including fuel taxes,       funds are sourced from general              dataset developed in the course
   vehicle registration fees and tolls –       revenues.                                   of the analysis can be found on
   make up a decreasing share of the                                                       Subsidy Scope’s website: http://www.
   cost of highway construction and            Subsidy Scope attributes the trend to
   maintenance.                                inadequate adjustment of user fees          highways/funding/
                                               to inflation and rising road costs, as
   The research, based on Federal              well as revenue instability, caused by
   Highway Administration statistics,          driving patterns changing in response

a roundup of news, views and ideas on subsidies and sustainable development

                                                                                                                  Issue 35, January 2010

   ECIPE conclude EU biofuels policy is costly, protectionist and risks violating WTO
   The European Centre for International       20% of the EU’s energy use to come            accusations of bad faith. Europe’s lack
   Political Economy (ECIPE) has               from renewable sources by 2020. Of            of negotiation with other countries is
   released a report criticizing the           this, biofuels are to make up a 10%           identified as the key problem with its
   European Union’s biofuels policy,           share of transport-related energy in all      approach.
   Green Protectionism in the European         E.U countries. In order to contribute
   Union: How Europe’s Biofuels Policy         towards these targets, biofuels               The report argues that a careful
   and the Renewable Energy Directive          producers are expected to meet                reading of the General Agreement
   Violate WTO Commitments.                    complex production criteria, including        on Tariffs and Trade (GATT) and the
                                               a gradually increasing minimum level          Agreement on Technical Barriers
   According to the report, which reviews      of saved greenhouse gas emissions,            to Trade (TBT) show that the EU’s
   the history and programs behind             and to avoid converting biodiverse            biofuels policy “clearly violates WTO
   the EU’s biofuels policy, substantial       or carbon-rich soils for growing              principles and rules”, and is unlikely to
   subsidies, import tariffs and standards     feedstocks (inappropriate land-use            qualify under any of the GATT’s criteria
   are used to favour domestically             change).                                      for exceptional treatment.
   produced biofuels, in “a classic
   example of ‘green protectionism’ –          ECIPE object that foreign exporters           ECIPE conclude that if it seriously
   protectionism that is not motivated for     may not be able to prove compliance,          intends to increase the share of
   the benefit of the environment, but         effectively cutting them off from the         biofuels in its energy mix, “Europe…
   which uses environmental concerns           EU market, especially where eligibility       needs to reconsider the role of trade in
   to pursue non-environmental                 for subsidies may be tied to meeting          achieving this ambition”.
   objectives.”                                the RED criteria. They also note that
                                               the EU fails to provide guidance on           The full report can be downloaded from
   The study gives particular attention        how it could prevent the manipulation         ECIPE’s website:
   to The Renewable Energy Directive           of ambiguities in the calculation of
   (RED), which sets a binding target for      carbon reductions, leaving it open to

   Subsidized U.S. biodiesel...                                                                                   continued from page 2

   Many insiders are predicting that           biodiesel may become competitive              in fuel consumption and greenhouse
   legislation to extend the biodiesel tax     with diesel. But biodiesel producers          gases than biodiesel ever did, helping
   credit will eventually be passed, and       compete with food processors for the          encourage conservation and the
   made retroactive to any biodiesel sold      same feedstocks, and as demand for            development of new, energy-saving
   since the beginning of the year. That       them increases so does the price. The         technologies in transport.
   might make sense if there were any          prices of vegetable oils are also closely
   real prospect for biodiesel made from       linked to the price of fossil fuels, thanks   Congress should resist calls to extend
   the chemical transformation of virgin       to modern agriculture’s dependence on         the life of the blenders’ credit, and let
   vegetable oils becoming economically        them for everything from pesticides and       this never-ending story come to an end.
   viable without subsidies. There isn’t.      fertilizers to transport and processing.
                                               In the summer of 2008, when food              Russ Finley is author of Poison Darts:
   The technology for making biodiesel is      riots were occurring around the globe,        Protecting the Biodiversity of our
   already mature; its production costs,       biodiesel made from soy oil was selling       World and a frequent commentator on
   more than 70% of which are determined       for US$ 6 per gallon in Seattle while         environmental issues. He is based in
   by feedstock costs, are unlikely to         regular diesel was selling for US$ 4.         Seattle, Washington.
   decline. Volatility in the markets for
   vegetable oils and petroleum products       High prices for petroleum fuels are,
   may mean that, for brief periods,           in any case, making more of a dent