The Biofuels Trade Challenge
There is rightly growing concern among the public and policymakers about climate change and its consequences. Combating climate change is an enormous and truly global challenge, requiring local, national, and international action. We must tackle it both effectively and urgently.
A key part of meeting our climate objectives is to minimize the harmful effects of transport on the environment. So-called “biofuels,” such as bioethanol and biodiesel, as well as developing the next generation of biofuels, must play a part in this. After all, every liter of petrol that is replaced with a biofuel benefits the environment.
Many countries around the world are producers or are emerging as producers of biofuels. Global production is rapidly increasing. World production of bioethanol, for example, doubled between 2000 and 2004. A further doubling is expected by 2010.
As output of biofuels increases, policymakers must ensure that global supplies are allocated effectively and smoothly between countries that produce and consume them. Free and open conditions for international trade are the most efficient way to allocate global resources, fully exploiting individual countries’ comparative advantages. This principle also holds true for the emerging biofuels market.
Today, however, trade in biofuels is limited. According to the United Nations Conference on Trade and Development, global trade in bioethanol accounted for less than 10% of global production in 2004, suggesting a large untapped trade potential. Part of the explanation no doubt lies in the presence of significant trade barriers.