Biofuels, trade and sustainable development

The global demand for biofuels has grown rapidly. High oil prices, the need to accommodate existing agricultural support programmes and the Kyoto Protocol to reduce greenhouse gas emissions, have all contributed to this. Biofuels have their limitations, however, and trade and other policies will have to be modified to ensure they contribute to sustainable development.

Biofuels are made by processing energy crops, such as cereal crops or oil-seeds, into liquid fuels for transport or heating. Bioethanol and biodiesel account for more than 90 percent of global biofuel use. A paper from the International Institute for Environment and Development in the UK identifies the sustainable development issues relevant to the production and trade of biofuels.

Global biofuel production in 2005 was estimated at over 35 billion litres, with Brazil and the USA the largest producers and consumers. Production is expected to quadruple in the next twenty years and account for about 10 percent of world motor petroleum. Biofuels could be part of the solution to climate change, as biofuels produced from certain feedstocks produce fewer emissions than fossil fuels.

Increased production could also benefit people in rural areas, help countries to diversify their energy sources and boost their economies. However, biofuels could also create environmental problems, particularly by expanding the area under cultivation, and there are concerns related to impacts on labour practices and food security.

The benefits and costs of biofuels vary widely according to the kind of crop, cultivation method, conversion (to energy) technology, and geographical area. Only limited amounts of biofuels are currently traded, but this is expected to change rapidly.

Key issues affecting biofuels trade include:

• There is no unique classification of biofuels under the current trading system, so no specific place to discuss trade liberalisation for biofuels.
• Tariff barriers (‘taxes’ on imports) can suppress the export of biofuels. Developing countries may be forced to export raw materials while more profitable biofuel conversion takes place in the importing country.
• Domestic support in industrialised countries, such as tax benefits and subsidies, not only undermines the competitiveness of developing countries, but also promotes a biofuel industry based on the least efficient energy crops.
• Market concentration can lead to negative social outcomes.
• Different technical, environmental and social standards can pose serious barriers to biofuels trade, particularly for developing country producers.
• There has been little progress with attempts to include biofuels in World Trade Organization negotiations on accelerated trade liberalisation of environmental goods.

The links between biofuels and sustainable development are complex. To maximise the benefits, the author recommends:

• identifying the impacts of trade barriers on exporting biofuels and feedstock from developing countries
• identifying the impacts of export-led biofuels based on different energy crops and contexts on sustainable development
• identifying what policy support to the biofuels market will provide the greatest positive sustainable impacts without distorting trade
• analysing environmental and social certification systems in supporting sustainable development outcomes from biofuels trade
• analysing how the costs and benefits are distributed along the biofuel production and trade chain
• analysing the links between international trade in biofuels and food security
• strengthening developing countries’ ability to produce biofuels, for example by organising small producers and providing access to technology.

Source(s):
‘Biofuels Production, Trade and Sustainable Development: Emerging Issues’, IIED Sustainable Markets Discussion Paper No.2, by Annie Dufey, IIED: London, 2006 (PDF) Full document.

Funded by: The Netherlands Ministry of Foreign Affairs (DGIS), Royal Danish Ministry of Foreign Affairs (Danida) and Swedish International Development Cooperation Agency (Sida)

id21 Research Highlight: 11 December 2007

Further Information:
Annie Dufey
International Institute for Environment and Development
3 Endsleigh Street
London WC1H 0DD
UK

Tel: +44 (0)20 73882117
Fax: +44 (0)20 73882826
Contact the contributor: annie.dufey@iied.org

International Institute for Environment and Development, UK

Other related links:
'Can biofuels reduce poverty and tackle climate change?'

'Can biofuels benefit both the environment and poor people?'

'Bioenergy: promises and challenges'

'id21 viewpoint: Biofuels, climate change and GM crops – who is really benefiting?'