Index

Expert Opinion: Encouraging Trade in Biofuels

By Suani Teixeira Coelho

The Doha Ministerial Declaration of the World Trade Organization (WTO) mandated negotiations to liberalize trade in environmental goods and services (EGS) to enhance the mutual supportiveness of trade and environment. In the negotiations to date, it has become clear that developed and developing countries look at this issue from different perspectives. While developed countries expect greater access to emerging markets for their export-oriented environmental services and technologies, developing countries seek to pursue economic, social and environmental policies and expand their exports of environmental goods and technologies.

For developing countries, the liberalization of EGS can make an important contribution to the UN Millennium Development Goals, the Johannesburg World Summit on Sustainable Development objectives and the Kyoto Protocol. For example, the Kyoto Protocol calls for the replacement of fossil fuels by renewable sources of energy so as to reduce carbon dioxide and other greenhouse gas emissions. Opportunities exist for renewable energy technologies in all countries, especially for biofuels—not only for developed countries that can use them to replace fossil fuels, but also for developing countries that can produce biofuels for internal use and/or export.

Biofuels are a renewable energy source derived from biomass, and include ethanol, biodiesel, and methanol (when produced from wood or crops). Bioenergy accounts for about 15 per cent of the world’s energy consumption, which is used mainly in developing countries. Despite the advantages of biofuels in contributing significantly to sustainable development, only a few countries foster their use, and trade in biofuels is still incipient. As the WTO looks at environmental technologies, there is a strong case to be made for eliminating tariffs and non-tariff barriers to the trade of biofuels. Trade liberalization of renewable energy, including biofuels, could provide a “win-win-win” solution through promoting trade, improving the environment, and also alleviating poverty.

Today, Brazil represents a benchmark in renewable energy use, an example that could be followed by other countries. The main environmental benefit from the use of ethanol emanates from the fact that alcohol fuel is made from biomass energy derived from agricultural crops—a renewable energy source. Other positive externalities include: job creation; reduction of health costs related to pollution in urban areas; diversification of energy sources; secure supply and economic feasibility; development of new car engine technologies; and development of environmentally sustainable agricultural production processes.

In Brazil, ethanol is used in cars as an octane enhancer and oxygenated additive to gasoline (blended in a proportion of 20 to 26 per cent in volume of anhydrous ethanol-gasoline in a mixture called gasohol) in dedicated hydrated ethanol engines or in the recently introduced flexible fuel vehicles (FFVs) that run on any blend of alcohol and gasoline. Sales of FFVs commenced in 2003 and dominate the current market. By 2007, all new models of automobiles sold in Brazil are expected to be FFVs, allowing the user to choose which fuel to use, according to price and availability.

Consumers also appear to prefer ethanol, which sells for 60 to 70 per cent of the price of gasoline at the pump, due to the significant reduction in production costs. The breakeven ethanol/gasoline price ratio is 70 per cent (without any government subsidies). These results show the long-term economic competitiveness of ethanol fuel as compared to gasoline. A common argument used against renewable energy—and, indeed, against many environmental technologies—is the lack of economic competitiveness. However, the Brazilian experience shows that costs can drop continuously through the so-called “learning curve effect.”

Alcohol fuel that can be used in automotive vehicles is also a feasible option for developed countries which are obliged to reduce their carbon emissions through the Kyoto Protocol,that can be used in automotive vehicles. In their search for cost effective and environmentally sound alternatives to fossil fuels, developed countries should consider importing biofuels from developing countries.

The WTO has a role to play with respect to making biofuels more attractive as an alternative to fossil fuels. Working towards trade liberalization and sustainable development, the Doha Declaration set the stage for negotiations on the reduction or, as appropriate, elimination of tariff and non-tariff barriers for EGS. Considering the current import duties in many developed countries on environmental goods (including environmental technologies), negotiations to liberalize trade could forge the necessary trade-offs to enhance trade in biofuels.

An enhanced commitment to market access is one of the foundations of the “Doha Development Round,” which includes supporting accelerated liberalization of trade in environmental goods and technologies of interest to developing countries. Production and export of biofuels represents a concrete option to reduce poverty and enhance sustainable development in developing countries.

Suani Teixeira Coelho, from Brazil, is São Paulo State’s Deputy Secretary of State for the Environment and Head of the Brazilian Reference Center on Biomass, University of São Paulo. This essay is written in her personal capacity.