Economic Development

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If the developed countries of the world are committed to significantly increase their use of biofuels, it might not be cost effective to meet that use entirely through domestic feedstocks and production. Under relatively undistorted price scenarios, countries in temperate climates with high population densities are not the least cost regions to produce biofuels in the volumes needed to substitute 20-30% of the world’s motor fuels. For this to happen, substantial production may emerge in developing countries. Kijani Energy hope to start a broad level discussion in Mozambique and other African countries on how can the development of a global biofuel industry be stimulated while ensuring that the producing countries retain a significant percentage of the benefits?

Biofuel production will be shaped by a wide spectrum of technological, economic, and environmental factors. For expositional purposes we will group the scenarios into three categories: the first would be characterized by small farms using substantial amounts of labor and appropriate technologies with most of the biofuels being produced and used locally. The second would be intermediate sized energy farms with production at a regional scale and the product being consumed in the domestic market. Under this scheme, producing countries would back out oil imports and substitute domestically produced biofuels. The third model would be one in which larger agribusiness firms like Kijani Energy invest in large energy plantations and export the biofuels to large markets where their products will be sold at global prices.

Different scenarios will emerge in different parts of the world, depending on several key factors. Does the country have access to external capital, so that investments in biofuels do not mean less investment elsewhere? Will the investment affect wages? Is land available and if so at what price? If a country is using its most fertile areas for growing energy crops, food production will be affected, but if it uses marginal areas such as those needed for Jatropha, there could be significant value added throughout its population. Will investment in biofuels stimulate investments in public infrastructure that can be used by others? Will there be spillover effects in the form of the development of other more sophisticated products that can provide huge social benefits?

The challenge will be to shape public policies so that the developing countries of the world that select to go down the biofuel production path can maximize the economic benefits and can equitably distribute those benefits. Many of the poorest countries are importers of both fuel and food and policies that result in increasing both will increase the disparity between poorest and richest countries. Potentially, there will be substantial distributional impacts of how policy makers elect to stimulate biofuels markets and trade. There will be growing pressure on policy makers to weigh these impacts as they fashion policies and programs to respond to the growing need to reduce their use of fossil fuels.

The answers to these questions depend on country and country specific factors. However both the creation of value and the distribution of benefits will be shaped by the polices and programs adopted at the regional, national, and international levels.