Considering trade policies for liquid biofuels

Sep 2007

Bioenergy is playing an increasingly important role as an alternative and renewable source of energy. Bioenergy includes solid biomass, biogas, and liquid biofuels. Combustion of biomass residues for heat and power generation is commercially viable without government support in some applications. Liquid biofuels made from biomass are attracting growing interest worldwide. The global liquid biofuel market today utilizes so-called first generation technologies and relies mainly on agricultural crops for feedstock. Second generation biofuels, still far from commercially viable, can open up many new opportunities because they can be sourced from a much wider variety of feedstocks, vastly expanding the potential for fuel production and for abating greenhouse gas (GHG) emission. The timing of commercialization is uncertain, although the needed cost reductions may be achieved in the coming decade.
The report focuses on ethanol and biodiesel, the two most important liquid biofuels, and on commercially demonstrated production technologies for these fuels. It does not address biomethanol or straight plant oil as a fuel, or biogas. The report takes a time horizon of the next 5 to 10 years, and does not attempt to assess the impact of policy changes on emerging technologies or new (not yet commercially viable) feedstocks such as cellulosic ethanol, because these are unlikely to be commercialized within the time horizon considered to have a significant impact on international trade in biofuels. Similarly, no assessment is made of environmental externalities that are poorly accounted for or on specific environmental effects of trade liberalization.
Chapter 1 begins with an overview of biofuel basics, the current economics of biofuels, and world consumption of gasoline and diesel (two primary petroleum fuels for which biofuels are substitutes). Following this is a discussion of the global distribution of biofuel production and consumption and the potential role of international trade in achieving efficiency and related objectives. It ends with a discussion of the World Trade Organization (WTO) and ongoing negotiations on agricultural and biofuel trade; this information is supplemented by appendix A. Chapter 2, supplemented by appendix B, details the interlinkages between biofuels and agriculture, and reviews trade reforms in agriculture and associated welfare gains, past and future. Chapter 3, supplemented by appendix C, describes government policies that affect important biofuel markets, discusses possible consequences of large expansion of biofuel consumption, and reviews in greater detail policy issues in biofuel trade including WTO negotiations. Chapter 4 concludes with policy lessons and recommendations.

By: M. Kojima, D. Mitchell, W. Ward (ESMAP)

 
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