the country, received US$37.4 billion in subsidies between 1995-2003 (UNCTAD, 2006). In many countries, subsidies are accompanied by blending mandates, e.g., the E.U. set a voluntary 5.75% biofuels target for 2007, supported by several mandatory targets at the country level. The differential treatment of ethanol and biodiesel under international trade rules (ethanol is classified as an agricultural product, biodiesel is classified as a chemical/industrial product) has important implications on international market access and also affects how the fuels would be treated under a proposed WTO category of "environmental goods and services" (IEA, 2004; IEA, 2006; Kopolow, 2006; UNCTAD, 2006; USDA, 2006; Kojima et al., 2007).

     Together, these forms of policy support generate substantial economic costs-reducing funds available for other policy goals, including energy conservation and support for other alternative energy generation technologies. Current levels of subsidies are considerable. For example, total annual subsidies to liquid biofuels in the US are estimated at US$5.1-6.8 billion, corresponding to US$0.38-0.49 and US$0.45-0.57 per liter of petroleum equivalent ethanol and biodiesel, respectively (Kopolow, 2006). Moreover, taxes on fuels represent a significant source of government income in many countries and reductions are often difficult to compensate. While blending mandates are attractive to policy makers because they do not directly affect government budgets, they too create considerable economic costs. In addition, blending mandates create inefficiencies by guaranteeing a market for biofuels producers irrespective of costs and limiting competition. This reduces incentives to develop more efficient and cheaper production-an effect that is reinforced by trade barriers.

     Against these costs stand potential benefits in terms of rural development, climate change mitigation and energy security as well as possible negative effects on the environment and food prices. Consequently, decision makers need to carefully assess whether the full social costs of bioenergy and associated promotion policies are worth achievable benefits.

     Policy options to reduce the social and environmental externalities of 1st generation biofuels production such as sustainability standards are widely noted in the literature, but developing effective standards that balance environmental and social interests with access to export markets for developing countries is a significant challenge. Given the potentially adverse social and environmental effects of large-scale increases in biofuels production (see Chapters 4 and 6), the development of sustainability standards is being discussed in different private and government supported forums.

     In the absence of universal regulations and enforcement, standards are viewed as key to limiting negative effects and improving benefits for small-scale farmers (O'Connell et al., 2005; Reijnders, 2006; WWF, 2006). In addition to disagreements on the definition of these standards, with large differences of opinion between industrialized and developing countries, uncertainty persists on how effective such standards can actually be. Given that biofuels are fungible export commodities, their effectiveness would depend on the participation of all major consumers and producers. Moreover, qualifying for standards and obtaining certification can be a considerable financial and institutional burden

for poor producing countries. It is therefore essential that developing countries are included and supported in the process of the development of sustainability standards to ensure that environmental and social considerations are balanced with the broader needs of developing countries, including considerations about the needs of small-scale farmers, farmer cooperatives and access to the markets of industrialized countries.

     Liberalization of biofuels trade would shift production to developing countries. There is significant question as to whether this would benefit small-scale farmers and in the absence of effective safeguards the resulting expansion of production in these countries could magnify social and environmental costs. Growing crops for biofuels could worsen water shortages; biofuel crop production in addition to food crops will add another new stress on water use and availability (de Fraiture et al., 2007b).

Second generation biofuels. The U.S. Department of Energy calculates that if all corn now grown in the US were converted to ethanol, it would satisfy only about 15% of the country's current transportation needs (USDOE, 2006); others put that figure as low as 6% (ETC, 2007). A second approach is to produce ethanol from cellulose, which has the potential to obtain at least twice as much fuel from the same area of land as corn ethanol, because much more biomass is available per unit of land. Thus promoting research and development for second generation biofuels is an often noted policy option. Synthetic biology approaches to break down cellulose and lignin, crucial for second generation "cellolosic" biofuels production, are still years off but may be promising. Importantly, efforts are also needed to allow developing countries and small-scale farmers to profit from the resulting technologies (Diouf, 2007). While some countries have recently increased their support for research and development on 2nd generation biofuels, more public efforts international efforts are needed to focus on developing means by which 2nd generation biofuels may benefit small-scale farmers and developing countries. This includes tackling the high capital intensity of technologies, facilitating farmer cooperatives and dealing with intellectual property rights issues.

      If any of the synthetic biology approaches are successful, the agricultural landscape could quickly be transformed as farmers plant more switchgrass or miscanthus as feedstock crops-not only in North America, but also across the global South. By removing biomass that might previously have been returned to the soil, fertility and soil structure would also be compromised. As presently envisioned, large-scale, export-oriented biofuel production in the global South could have significant negative impacts on soil, water, biodiversity, land tenure and the livelihoods of farmers and indigenous peoples (de Fraiture et al., 2007a).

Bioelectricity and bioheat. There is considerable potential for bioelectricity and bioheat to contribute to economic and social development (see Chapters 3 and 6) and a number of clear policy options to promote a better exploitation of this potential (Stassen, 1995; Bhattacharya, 2002; Kishore et al., 2004; Kartha et al., 2005; Ghosh et al., 2006). Promotion of R&D, development of technical standards as