WTO disciplines and biofuels: opportunities and constraints in the creation of a global marketplace

Oct 2006

Producing fuel from agricultural crops has already raised questions about the impacts on the supply of food and land. What has received less attention is the shift that would result in the location of feedstock and fuel production. Energy demand and land productivity are somewhat asymmetrical. OECD countries, which import most of their fossil fuel, consume more than 49 million barrels of oil a day. While their demand for biofuels is rising, the same industrialized countries do not have sufficient land availability to entirely meet that demand with domestic production; even if they could, this would not necessarily constitute the most cost-efficient or environmentally sustainable approach. The most ideal land for sugarcane and oil palm trees, currently the most energy efficient biofuel feedstocks, is primarily located in developing countries in tropical and sub-tropical climates. In addition to having land more suitable to efficient biofuel feedstocks, these countries also have longer growing seasons and lower labour costs than OECD countries.
To date, this asymmetry has not mattered greatly as the consumption of biofuels has been insignificant compared to fossil fuels. Most countries have been able to supply their markets with domestically produced biofuels and importing biofuel for transportation use has been minimal. However, as demand increases and developing countries identify a market in which they may have a comparative advantage, international trade in biofuels may become more commonplace. While developing countries arguably have a comparative advantage, there are also concerns that increased production of feedstocks and biofuels in these countries might contribute to increased food insecurity and prove environmentally disruptive. Toward this end, import criteria are being considered.
Therefore, an overview of how WTO rules might apply to this sector is to be recommended.
Even if such trade does not materialize, an examination of WTO rules is timely, given uncertainties about subsidy notification requirements and the increase in biofuel by-products. As this is a topic that has not yet been addressed in great detail, the examination should be viewed as an exploratory one. This paper sets forth the range of WTO issues that could usefully be clarified in a debate on how international trade rules apply to the biofuels sector.

By: International Policy Council and Renewable Energy and International Law (REIL)

 
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