Biofuels are products that can be processed into liquid fuels for either transport or heating purposes. Bioethanol is produced from agricultural products including starchy and cereal crops such as sugarcane, corn, beets, wheat, and sorghum. Biodiesel is made from oil- or tree-seeds such as rapeseed, sunflower, soya, palm, coconut or jatropha.

Although efforts to produce biofuels date back to the early days of the automobile (particularly the successful experience of the PROALCOOL Programme launched by Brazil in 1975), biofuels have only started to be seen as a serious alternative to oil worldwide over the last five years or so. Their reduced carbon emissions compared to conventional fuels and their positive impacts on rural development, together with the current high oil prices, are key elements behind their market development.

The perceived benefits of biofuels are reflected in the increasing number of countries introducing or planning to introduce policies to increase the proportion of biofuels within their energy portfolio. If this is to be achieved, significant increases in production are required rapidly to satisfy greater global demand. For instance, the EU’s goal of 5.75 per cent biofuel content in the fuel transport blend by 2010 will require a fivefold increase in EU production. With the coming into force of the Kyoto Protocol and the implementation of the different domestic measures for biofuels, global biofuel production is expected to quadruple in the next twenty years, accounting for about 10 per cent of world motor petroleum.

Currently very little biofuel enters international markets since the bulk of it is consumed domestically. However, trade in biofuels is expected to expand rapidly, as many countries will not have the domestic capacity to supply their internal markets. Governments will need to create the conditions both at global and national levels for increased production and trade.

Despite enthusiastic views on the potential of biofuels for sustainable development, there is currently very little research on the links between biofuel production, trade and sustainable development. Existing research focuses on the economic and technological aspects of biofuel production. Research on environmental aspects tends to concentrate on their energy balance and potential for reduced GHG emissions. Almost no research has been done on the trade aspects or the wider implications for sustainable development of trade in biofuels.

At present there is no comprehensive trade regime specifically applicable to biofuels. Biofuels are categorised as “other fuels”, or as alcohol (in the case of ethanol) and are subject to general international trade rules under the World Trade Organization (WTO). Energy crops are covered by the WTO Agreement on Agriculture. Biofuels may also be included in a list of “environmental goods” for accelerated trade liberalisation under the current Doha Round. In addition, there are several barriers –including tariffs but especially non-tariff barriers – affecting biofuel production and trade that could jeopardise developing countries’ potential to benefit from a wider global biofuel uptake. Developed countries’ domestic policies and support for production of energy crops (e.g. subsidies and tax credits) and biofuels processing are key in this sector. Another cause for concern is the proliferation of different technical and environmental standards with no mutual recognition between them.

An increase in trade in biofuels would imply crop expansion in several countries. This would have implications for sustainable development that would need to be investigated. On the one hand, biofuels could lead to greater economic gains, rural development (i.e. poverty reduction), and reduced GHG emissions compared to oil fuels. On the other hand, production of energy crops could cause expansion of the agricultural frontier, deforestation, monocropping, water pollution, the spread of GMOs, food security problems and poor labour conditions, amongst other concerns. The positive impacts and trade-offs involved vary depending on the energy crop in question, conversion technology and the country under consideration. These need to become clearer.