of transport fuels on a large scale and be able to contribute to the development and sustainability goals. First, next gen­eration biofuels technologies have not yet reached a stage of commercial maturity and significant technological chal­lenges need to be overcome to reduce production costs. It is not yet clear when these breakthroughs will occur and what degree of cost reductions they will be able to achieve in practice (Sanderson, 2006; Sticklen, 2006; DOE, 2007). The U.S. Department of Energy has set the following am­bitious goals for its cellulosic ethanol program: reducing the cost per liter from US$0.60 to 0.28 and capital invest­ment costs from currently $0.80 to 0.49 by 2012 (DOE, 2007). Second, even if these breakthroughs occur, biofuels will have to compete with other energy technologies that are currently being developed in response to high oil prices. For example, with regards to transport fuels, technological progress is currently reducing costs of conventional (e.g., deep sea) and unconventional (e.g., tar sands) oil production and also of coal and gas to liquid technologies. Third, while countries like South Africa, Brazil, China and India are cur­rently engaged in advanced domestic biofuels R&D efforts, high capital costs, large economies of scale, a high degree of technical sophistication as well as intellectual property rights issues make the production of next generation biofu­els problematic in the majority of developing countries even if the technological and economic hurdles can be overcome in industrialized countries.

6.8.2.2 Bioenergy and rural development
Living conditions and health of the poor can be considerably improved when households have the opportunity to upgrade from inefficient, polluting and often hazardous traditional forms to modern forms of energy. Through their importance for the delivery of basic human needs such as potable water, food and lighting, these modern energy services are among the primary preconditions for advancements in social and economic development (Barnes and Floor, 1996; Cabraal et al., 2005; Modi et al., 2006). Moreover, bioenergy and an­cillary industries may promote job creation and income gen­eration. However, the balance of positive and negative ef­fects of different forms of bioenergy is subject to significant debate and is highly context specific. Careful assessments of local needs, economic competitiveness as well as social and environmental effects are needed to determine under which circumstances modern bioenergy should be promoted.
        The  domestic  production  of biofuels  from  agricul­tural crops (1st generation) is often credited with positive externalities for rural development through creating new sources of income and jobs in feedstock production and en­ergy conversion industries (e.g., Moreira and Goldemberg, 1999; von Braun and Pachauri, 2006; Worldwatch Institute, 2006). However, the actual effect of 1st generation biofuels production on rural economies is complex and has strong implications for income distribution, food security and the environment.
         Economically, the major impact of biofuels production is the increase in demand for energy crops. In fact, biofuels have historically been introduced as a means to counteract weak demand or overproduction of feedstock corps, e.g., this was a principal reason for Brazil to introduce its ProAl-cool Program in 1975 (Moreira and Goldemberg, 1999). On

the one hand, this additional demand can increase incomes of agricultural producers, increase productivity enhancing investments and induce dynamic processes of social and eco­nomic development (FAO, 2000; Coelho and Goldemberg, 2004; DOE, 2005; Worldwatch Institute, 2006).          On the other hand, this needs to be evaluated against economic, social and environmental costs that may arise from large increases in biofuels production. First, even if biofuels can be produced competitively, at least part of the rise in agricultural incomes would represent a mere redistri­bution of income from consumers of agricultural products to producers. The extent of this redistribution depends on the degree to which food prices are affected. Second, in cases when biofuels are promoted despite having higher costs than petroleum  fuels,  an analogous redistribution  from energy consumers to agricultural producers takes place. In both cases the effects on poverty are highly complex. Some rural poor may gain if they can participate in the energy crop production, biofuel conversion and ancillary sectors or otherwise benefit from increased economic activity in rural areas. This depends critically on aspects such as production methods (e.g., degree of mechanization) and institutional ar­rangements (e.g., structure of the agricultural sector, prop­erty rights of agricultural land and security of land tenure). Conversely, those rural and urban poor people who spend a considerable share of their incomes on energy and especially food are bound to lose if they have to pay higher prices. Food-importing developing countries would also suffer un­der globally rising food prices. Time lags in the response of producers to increased feedstock demand may lead price increases to be more accentuated in the short-term than in the medium to long-term.
          Biofuels are considerably more labor intensive in pro­duction than other forms of energy such as fossil fuels and thus they are often proposed as a means for improving em­ployment in the agricultural sector as well as in other down­stream industries that process by-products such as cakes and glycerin (Goldemberg, 2004; Worldwatch Institute, 2006). However, estimating actual effects on employment is highly complex. First, any newly created employment needs to be weighed against jobs that are displaced in other sectors, in­cluding jobs that would have been created in the feedstock production sector even in the absence of biofuels produc­tion. These dynamics are complex and may involve very dif­ferent industries, e.g., the livestock industry, food processors and other major user of agricultural crops (CIE, 2005).
          Second, while bioenergy is labor intensive compared to other energy industries, it is not necessarily labor intensive compared to other forms of farming. In fact, energy crop production very often takes the form of large-scale mecha­nized farming. Thus, in cases where traditional farming is replaced by less labor intensive energy crop production, jobs may actually be lost. Similarly, no new jobs are created if biofuels production simply displaces other agricultural crops. It is unsure whether such job substitution is actually beneficial, especially considering that many jobs in feed­stock production are temporary and seasonal (Fritsche et al., 2005; Kojima and Johnson, 2005; Worldwatch Institute, 2006).
       Consequently, the overall effects on employment and incomes are highly complex and context specific and there is