Bioenergy can play an important part in managing the transition towards a lowcarbon
energy system. However, in many countries its rapid expansion increases
pressures on agricultural land use and natural ecosystems, resulting in conflicts with
conservation aims and food security. Establishing an effective governance framework
for bioenergy, to safeguard against sustainability risks and promote the efficient use of
scarce biomass resources, is of the utmost importance, but is complicated by the
existence of multiple objectives, multiple market failures and the variety of possible
value chains. In this situation, policy recommendations based on neoclassical
assumptions prove too abstract to be of practical relevance. Using the case of European
bioenergy policy, this paper explores how economic bioenergy policy recommendations
could be improved by using a new institutional economics (NIE) perspective. Moving
along the value chain, we discuss what implications the consideration of transaction
costs, incomplete information, path dependencies, and political feasibility has for
finding solutions to the governance challenges of bioenergy. We conclude that policy
implications derived from NIE differ clearly both from neoclassical recommendations
and current EU bioenergy policy, and that a NIE framework for the analysis of
bioenergy governance, which takes not only market failures, but also the risks of
government failures into account, could make a useful contribution to the development
of realistic, “second-best” solutions to the allocative problems of bioenergy use.