Development of biofuels

Abstract

This paper highlights the importance trade policy has for the development of the biofuel industry, particularly in developing countries, together with energy and agricultural policy measures. It describes differences between the actions that developed and developing countries might take, considering their negotiating power and their capacity to use international rules currently in force, and to influence trade negotiations. It also shows the extent to which a small country can profit from WTO rules and Doha Round negotiations so as to limit developed countries’ discretion and enhance their opportunities to access these large, expanding markets. The strategic importance attached to the development of biofuels (BF) 3 in the major energy producing and consuming countries is based on several grounds, the most relevant being economic, political, environmental, and energy supply security reasons. The increase in fossil fuel prices, the geopolitical tensions in some oil producing areas, the likelihood of scarcities arising in the medium-run, and the need to reduce emissions of polluting and greenhouse gases have generated a strong interest in the development of alternative energy sources, in the developed world as well as in the developing. Over the last few years, BF have attracted growing interest in the United States (US) and the European Union (EU), which have based their development on similar foundations. While in the US the objective is to reduce dependence on imported fuel, and therefore, the economic vulnerability of national security, the EU aims at a three-pronged goal: to reduce greenhouse gas emissions, to achieve security in terms of energy supply, and to reduce their dependence on fuel imported from conflictive geopolitical areas. As many countries currently have rules that mandate the use of BF, either pure or blended with oil derivatives, this product has a demand guaranteed by law. In the case of developed countries, these legal requirements create a significant consumer market, which can be supplied by either domestic or imported production. From the economic point of view, the best-known policies that encourage the development of BF are those relating to energy and agriculture, especially subsidies for the production of raw materials and end products, fiscal incentives to BF demand, promotion of vehicles that can run on BF, and support for research and development. Trade policy measures are gradually being incorporated into these measures. Example of these are trade barriers to the access of imported BF so as to foster domestic development, market preferences for raw materials of certain origin in particular, and technical rules that end up discriminating some of these raw materials. Trade policy also plays a key role from the point of view of the exporter: it helps them decide whether developing countries, which are important producers of the raw material required by biofuels, will export either the end product or the raw material for the industrialization process to take place in the northern hemisphere.