Criteria

Sustainability principles and criteria can guide bioenergy planning by governments, project developers and investors. Some governments have started to develop principles and criteria. Also, most of the development finance and large finance institutions already apply environmental and social safeguards when making their financing decisions in other areas, such principles can help reduce project risks, and raise corporate social responsibility profiles also in bioenergy development.

For sustainability criteria to be widely adopted and implemented, governments, the private sector, producers, and civil society particularly small farmers and indigenous people need to be involved in their development and application. Transparency will also help to avoid breaching trade under rules of the World Trade Organization (WTO).

From a social perspective, a sustainable bioenergy sector addresses labour and health issues while respecting the rights of indigenous people who may be marginalized by large-scale projects. This is particularly important in developing countries where foreign investment can make biofuel projects so financially compelling that these rights become secondary to the viability of the project. Bioenergy production should also contribute to social and economic development of local, rural and indigenous people, and should not impair food production.

From an environmental perspective, GHG balance, direct and indirect impacts on biodiversity as well as impacts on soil, water and air should be avoided.

Just as wood products can now carry an advanced environmental certification, bioenergy can be internationally certified in line with the developed environmental and social criteria. Certification can protect producers and enable consumers to make informed choices. Certification also has its limitations, e.g. while direct land use changes can be covered though certification schemes, indirect land use changes (which are more difficult to assess) can only be addressed if all biomass products are certified.

Alternatively, additional measures would have to be used, such as prohibiting bioenergy production in designated areas to preserve both biodiversity and carbon storage or market based instruments. These would have to be carefully monitored, however.

Markets

Market-based bi-lateral and multilateral arrangements can support a sustainable bioenergy framework, and address climate change and biodiversity impacts resulting from land use changes. The carbon market is also an important policy driver for bioenergy by potentially valuing the net carbon taken from the atmosphere, and similarly discussions are ongoing under the Biodiversity Convention, valuing ecosystem services and looking into payments for conservation. The Clean Development Mechanism (CDM) under the current climate regime provides a financial incentive to invest in GHG reductions in developing countries, although
there is only one current methodology for bioenergy projects, and financial flows through the CDM will be able to provide only additional revenue to Bioenergy projects, not full financing. At the Climate COP in Bali in December 2007, governments agreed to develop a mechanism for reducing emissions from deforestation and degradation (REDD). This mechanism might also be of relevance to bioenergy projects, favouring those that are not developed on "carbon-rich" lands, such as tropical rainforests, and high-value conservation areas.

Some smaller and more innovate projects - particularly those with a large social dividend - often do not receive the same level of interest from commercial investors as large scale projects using proven crops and technologies. This investment gap can be overcome through special lending conditions that value the social benefit and improve their economic viability. Additional benefits can be gained if the cost-benefit analysis of bioenergy projects reflects both external costs and co-benefits, such as access to modern forms of energy that enable new business, employment, health and development opportunities.

Targets and Policies

Domestic targets or mandates for Bioenergy can promote markets, but such mandates can also distort markets for energy and agricultural products and conflict with other objectives, such as reducing subsidies, import quotas, and non-tariff barriers and other policy areas. Targets based on a solid assessment of the sustainable potential of bioenergy should be phased in gradually, allowing for corrective measures while providing incentives and certainty for the market to develop.

In general, the bioenergy sector will advance more rapidly and sustainably under integrated and coordinated policy frameworks that include agriculture, energy, environment, and transport sectors; and by ensuring trade policies and climate change policies work together. The market acceptance of biofuels will also accelerate if the price for energy "tells the environmental truth", including the costs of climate change and pollution. Currently this is not the case, and makes conventional fuels look more financially attractive than they really are. Internalising the cost of pollution and reforming energy and agricultural subsidies would send powerful market signals to encourage a sustainable bioenergy sector. Further, monetizing other elements, such as development benefits, in cost-benefit analyses will enhance the economic viability of bioenergy projects, particularly small-scale projects in areas where access to energy is currently limited.