Environmental Impacts of Trade Liberalization in the Bio-diesel Sector of the Lao PDR

Lao relies heavily on the import of oil. A switch to locally-produced bio-fuel sources may not only help alleviate that dependency, but also provide a new economic opportunity for Lao PDR. This paper provides an overview of the bio-diesel sector in light of increasing trade liberalization between Lao PDR and its key trade partners. It seeks to explore the environmental issues, both positive and negative, surrounding the trade liberalization of the bio-diesel sector, while also flagging key environmental factors to be considered in trade negotiations.

Key findings:

• With limited natural mineral and oil resources, Lao PDR relies on imports of fuel for transport and industry. The recent rise in crude oil prices and the rapidly-growing demand for oil in China have highlighted the importance of developing an efficient energy policy, including alternative energy sources.

• The rational for the government's plans to increase the production and use of biofuels is based on the premise of potential positive environmental and social impacts, notably the mitigation of climate change through greenhouse gas abatement, conservation of fossil fuels, security of energy supply and maintaining employment in the agricultural sector.

• There are real concerns about the environmental and social impacts associated with bio-diesel production such as the conversion of natural forests to mono-crop plantations, conversion of land to food crop production for biofuels, expansion of biodiesel crop cultivation into areas with rich biodiversity and endangered species, and water pollution from the use of fertilizers and pesticides.

• While many government policies and regulations indirectly govern the biodiesel sector, a cohesive national policy on biofuels does not exist at present and will require coordination between government ministries and provincial authorities.

Key recommendations:

• mainstream environmental considerations into bio-diesel policy and regulation development processes—for example, conduct a strategic environmental assessment of the national biofuel policy in coordination with the ministries and provincial authorities concerned, which clearly outlines environmental and social policies and is integrated with, and included in, a national energy production and management plan; and

• encourage the private sector to adopt best practices by strengthening the strategic environmental assessment process to ensure the private sector addresses environmental and social issues of their operations in Lao PDR and by providing incentives to attract investment from both domestic and foreign sources to develop suitable bio-diesel crops in line with strategic environmental assessment findings.