The dramatic rise in the production of biofuels, chiefly ethanol and bio-diesel, in the last few years has created a number of opportunities and an equal number of challenges for agriculture and the trade system. The prospect of being able to turn agricultural crops, and eventually agricultural waste products, into fuel is revitalizing many parts of the farming community. The lure of renewable fuels has considerable resonance across the political spectrum, from those concerned about the present reliance on fossil fuels and its global environmental consequences to those who see the strategic value of reduced dependence on imported oil. The reaction of a number of countries has been to encourage the development of renewable energy sources and to promote the use of biofuels. Developing countries see a possible new outlet for their agricultural raw materials, such as sugar and palm oil, which could benefit from a growing market and provide employment in processing activities. However, challenges are beginning to emerge, as the use of corn for ethanol appears to add to upward pressure on food prices and the total emissions of greenhouse gases associated with the production of ethanol may be as high as those from conventional fuels. If biofuels are to make a constructive contribution to sustainable development, it is clear that public policy needs to evolve on the basis of careful assessment of their contribution and appropriately targeted policies.

This chapter is intended as a contribution to the ongoing discussion on public policy and biofuels.