Will the global rush to bio-fuel cause poverty?

In its first report on the impact of bio-fuels, the United Nations (UN) has warned that such fuels may increase poverty in developing countries and have a wider environmental impact than has in the past been suggested. With oil prices at a record high and with climate change pressures, much of the developed world has adopted targets for bio-fuels, but environmentalists have warned that the rush to grow the raw materials for bio-fuels may be more damaging to the environment than the fossil fuels they will replace.

Global rush to energy crops threatens to bring food shortages and increase poverty, says UN Guardian (9/5/07)
UN warns on impacts of biofuels BBC News Online (9/5/07)
UN raises doubts on biofuels Guardian (9/5/07)

1. What are the external costs and external benefits resulting from the use of bio-fuels as opposed to fossil fuels?
2. Using diagrams as appropriate, show the impact of increased use of bio-fuels on the social equilibrium in the market for fuel.
3. Assess policies that European governments could put in place to ensure that the move towards increased use of bio-fuels has a positive environmental impact.