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8 Bioeconomy Lessons from Biofuel Policies …
most highly industrialized countries (Norway being the chief exception), emerging
economies characteristically have such companies, usually energy giants with the
largest shares of the domestic fuel production and distribution markets.
1 This pattern
owes to twentieth-century history when developing country governments were the
only entities in those countries able to undertake fossil fuel exploration and production, while capital-rich developed countries already counted on several large private
fossil fuel companies.
This path dependency now influences bioeconomy development in emerging
economies. By holding the link between biofuel producers and final consumers,
these governments have been able to not only oversee and regulate biofuel agendas,
but also to implement them directly. More recently, governments have gone even
further and expanded their “implementation arms” to biofuel production itself, as
seen in the creation of Petrobras Biofuels in Brazil and Bharat Renewable Energy in
India. Likewise, Indonesia’s Pertamina has shown interest in itself processing palm
oil to produce biodiesel. These moves have mainly been a reaction to disappointments with private industries, which at not finding profits in jatropha- or castorbased biodiesel, abandoned smallholders and threatened the government agendas.
In Indonesia’s recent case, private producers sometimes opt to export crude palm
oil instead of contributing to the country’s biodiesel supplies if doing the former is
more profitable. By taking over this step of the chain and achieving further vertical
integration, states have obtained more significant control over biofuel production
and further adherence to their political or social goals. For instance, these goals may
include ensuring that production suits national interests (e.g., domestic consumption
rather than exportation). They may alternatively relate to smallholder incorporation,
despite the less attractive economic conditions that private companies usually avoid
(e.g., due to higher transaction costs, smaller economies of scale, or risk from dealing
with suppliers not used to market contracts). In other words, the state has shown to be
more ready to place national or social goals above profit-seeking and pure economic
reasoning, and it has therefore advanced to fill perceived gaps left by the private
sector.
Fourth, building upon these three roles above, the state has also sought to perform
a clear steering role that differs from their free-market approach on the international level (see Chap. 4). Tight controls have accompanied bioeconomy promotion
through public policies. They are present not only in general legal requirements
but also in rules (e.g., environmental and labor standards, social inclusion requirements) from public banks that finance biofuel expansion and through state-controlled
oil companies. The larger the state participation in the bioeconomy, the higher has
been its leverage to impose such requirements. Such steering has been highest in
Brazil, mainly due to the state’s role in strongly financing bioenergy. It was particularly conspicuous during the heyday of Petrobras Biofuels and the left-leaning
Workers’ Party administrations (see Chap. 5). In turn, this steering role has been
1 These state-controlled oil giants include Petrobras in Brazil, Pertamina in Indonesia, the Indian Oil
Corporation, Hindustan Oil and Bharat Petroleum in India, and similar companies in other emerging
economies such as Russia, China, South Africa and others. See De Graaff (2012).
8 Bioeconomy Lessons from Biofuel Policies …
most highly industrialized countries (Norway being the chief exception), emerging
economies characteristically have such companies, usually energy giants with the
largest shares of the domestic fuel production and distribution markets.
1 This pattern
owes to twentieth-century history when developing country governments were the
only entities in those countries able to undertake fossil fuel exploration and production, while capital-rich developed countries already counted on several large private
fossil fuel companies.
This path dependency now influences bioeconomy development in emerging
economies. By holding the link between biofuel producers and final consumers,
these governments have been able to not only oversee and regulate biofuel agendas,
but also to implement them directly. More recently, governments have gone even
further and expanded their “implementation arms” to biofuel production itself, as
seen in the creation of Petrobras Biofuels in Brazil and Bharat Renewable Energy in
India. Likewise, Indonesia’s Pertamina has shown interest in itself processing palm
oil to produce biodiesel. These moves have mainly been a reaction to disappointments with private industries, which at not finding profits in jatropha- or castorbased biodiesel, abandoned smallholders and threatened the government agendas.
In Indonesia’s recent case, private producers sometimes opt to export crude palm
oil instead of contributing to the country’s biodiesel supplies if doing the former is
more profitable. By taking over this step of the chain and achieving further vertical
integration, states have obtained more significant control over biofuel production
and further adherence to their political or social goals. For instance, these goals may
include ensuring that production suits national interests (e.g., domestic consumption
rather than exportation). They may alternatively relate to smallholder incorporation,
despite the less attractive economic conditions that private companies usually avoid
(e.g., due to higher transaction costs, smaller economies of scale, or risk from dealing
with suppliers not used to market contracts). In other words, the state has shown to be
more ready to place national or social goals above profit-seeking and pure economic
reasoning, and it has therefore advanced to fill perceived gaps left by the private
sector.
Fourth, building upon these three roles above, the state has also sought to perform
a clear steering role that differs from their free-market approach on the international level (see Chap. 4). Tight controls have accompanied bioeconomy promotion
through public policies. They are present not only in general legal requirements
but also in rules (e.g., environmental and labor standards, social inclusion requirements) from public banks that finance biofuel expansion and through state-controlled
oil companies. The larger the state participation in the bioeconomy, the higher has
been its leverage to impose such requirements. Such steering has been highest in
Brazil, mainly due to the state’s role in strongly financing bioenergy. It was particularly conspicuous during the heyday of Petrobras Biofuels and the left-leaning
Workers’ Party administrations (see Chap. 5). In turn, this steering role has been
1 These state-controlled oil giants include Petrobras in Brazil, Pertamina in Indonesia, the Indian Oil
Corporation, Hindustan Oil and Bharat Petroleum in India, and similar companies in other emerging
economies such as Russia, China, South Africa and others. See De Graaff (2012).