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The effects of biofuels policies on global commodity trade flows

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B. Fridfinnson
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Trade in ethanol is increasing, and raises the need for the classification of various biofuels within frameworks such as the WTO. With that being said, this paper wonders how do biofuels policies and programs fit within the WTO’s stated goals of liberalisation. In addition, it examines the effects of the rapid biofuels expansion on the prices of grains, and the effects triggered in the livestock industries. The paper indicates that the biofuels industry affects and is affected by government policies in countries around the globe. In fact, governments' policies are designed to promote the domestic consumption, and perhaps in some cases, the eventual export of biofuels. However, the paper notes that the motivations behind government promotion of biofuels are complex, involving issues ranging from the environment and climate change to agriculture and farm income.The paper figures that trade in biofuels is small relative to world-wide production. Nonetheless, given ambitious consumption mandates in many developed countries as well as increasing energy consumption, this will not likely remain the case in the long-run. Furthermore, the paper underlines that ethanol is currently marketed as an agricultural product, though not specifically for fuel use. Therefore, the removal of trade barriers, particularly in the developed countries, would ease pressure on the traditional feedstocks, and also lower world ethanol prices. In addition, it would allow countries with a comparative advantage to capitalise on the opportunity to produce low-cost biofuel. Yet, the paper finds that whether the removal of these trade barriers on biofuels would affect their efficacy as a political tool remains to be seen.