The geographic mismatch between supply and demand presents unique opportunities for international trade to generate a globally rational allocation of resources. In general, growing conditions and land availability for energy crops are better in the tropics while the bulk of demand comes from northern hemisphere or OECD countries. The main challenge to a pattern of production consistent with resource intensity arises from the tendency for industrialized countries to erect barriers to trade—either because energy security rises to the level of a strategic concern or because of the political weight of farming lobbies. A secondary challenge stems from the need for producing countries to effectively develop an export oriented sector (including ensuring sufficient domestic production capacity and transport infrastructure).

In the case of biofuels, it is likely that international trade will be allowed to generate a win-win exchange given the: (i) primacy of global climate concerns, (ii) advantage in diversification of geographic sources of energy and diversification of feedstocks, and (iii) acknowledged scarcity of land in OECD countries.

In practice, effectively boosting international trade in biofuels still requires a significant upgrading of the architecture of international trade. In particular, it is crucial to adopt: 

1. A standardized classification of biofuels at the WTO level.
   a. While ethanol and feedstocks are classified as agricultural products and their trade is governed by the Agreement on Agriculture of the WTO, biodiesel is classified as an industrial good and subject to the general rules of the GATT. Thus, at present, different rules on market access and subsidies apply to each of these products.
   b. The currently suspended Doha Round was expected to implement different rules for environmental goods, including “the reduction, or, as appropriate, elimination of tariff and non tariff barriers to environmental goods and services”. Some observers have noted that the interest in promoting biofuels could actually help the Doha Round because agricultural liberalization has become the centerpiece of the discussions but whether the definition would include ethanol and biodiesel has yet to be universally agreed.
2. Global fuel quality standards.
   a. A globally consistent set of standards will ensure adequate supply of uniform quality in consumer markets. Currently, there are three main standards (US, EU and Brazil) with some important differences among them. To harmonize these different standards, which are partly dependent on feedstock and local patterns of use, an international task force has initiated the necessary technical work.
   b. At the same time, pressure from engine manufacturers and consumers is motivating national standard-setting bodies to work on specific blended fuel requirements. As a result, the US recently published specific standards for B20 (biodiesel blend consistent of 20% biodiesel and 80% petroleum diesel). This has spurred engine manufacturers to explicitly extend warranties to include the use of B20 and car manufacturers to introduce new diesel models.
3. Internationally agreed sustainability guidelines.
   a. Concerns that a rapid increase in biofuel production could lead to environmental damage—stemming primarily from the experience with palm oil in southeast Asia—have led to calls for standards and certification procedures to ensure that production is undertaken in a sustainable manner.
   b. Ideally, these guidelines should be science-based and should include a full “life-cycle” assessment of biofuels’ greenhouse gas emissions and benefits.
   c. One concern with these initiatives relates to the WTO treatment of product production methods (PPMs), which is very controversial and sometimes a pretext for trade protection.
   d. A useful overview of related policy measures, existing certification schemes and ongoing initiatives to develop methodologies specific to biofuels is provided in a recent paper published by a working group at the United Nations (UNEP, June 2007, Compilations of existing certification schemes, policy measures, ongoing initiatives and crops used for bioenergy).