This paper focuses on international trade issues that are arising due to increased interest in biofuels. It analyses international comparative data on the production costs of biofuels, as well as their effectiveness in reducing greenhouse gas emissions.The first section gives an overview of the industry, which has seen a significant rise in rate of production since 2000, especially in G8+5 countries. It looks in particular at the principal factors of production: land, labour, capital and technology; and also the principal value-adding elements: feed stocks, processing facilities and transportation-storage-distribution infrastructure.The second section looks at the comparative advantages and cost-effectiveness of the biofuels ethanol and biodiesel.Section three examines the government policies that are involved in determining the extent to which biofuels can actually become significant contributors to the mitigation of climate change. Among these policies are government subsidies and trade tariffs, both on imports and the manufactured goods involved in production in the refining process.The paper concludes with two important qualifications relating to the cost –effectiveness and advantages of biofuels:there are significant differences in the cost-effectiveness among the specific types of fuels depending on the feedstock and refining processes that are usedthere are also significant differences in countries’ comparative cost advantages in producing them.The report finds a need for analytic and policy-making attention to be paid towards the tensions between individual government’s policies and strong internationalising economic factors. This means that international trade and investment issues need to be given higher priority, especially during the upcoming G8 summit.
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