This paper reports on the multilateral trade and investment context for biofuels. It briefly introduces the context surrounding biofuels and delves into some of the factors driving the rapid expansion in production and use. The analysis looks at trade and investment issues for biofuels, and some of the issues on developing standards. This discussion paper concludes with proposals for how governments, particularly small and medium-sized economies, might develop appropriate trade and investment rules to support a fair and sustainable biofuels sector.

This paper looks at the multilateral trade and investment context for biofuels. Biofuels are a relatively new arrival in the world of global trade, though not quite so new to investors. A few countries, notably Brazil, have a biofuel industry that dates back to the 1970s, but it is only in the last few years that biofuels have captured the headlines and really taken off. The production, investment and the time given to biofuels on the policy agenda have all increased exponentially since 2003. This paper is focused on the agricultural crops that are being converted into liquid fuel on a commercial scale, especially, but not only, in response to the recent surge in demand from both the EU and the United States, two of the world’s largest energy users. The biofuels reviewed are ethanol and biodiesel, which are the principal traded biofuels. This paper briefly introduces the context surrounding biofuels and then looks more particularly at some of the factors driving the rapid expansion in biofuel production and use. The analysis looks at trade issues for biofuels, investment issues for biofuels, and some of the issues on developing standards. The paper concludes with some proposals for how governments, particularly small and medium-sized economies, might develop appropriate trade and investment rules to support a fair and sustainable biofuels sector.