Heinz Hauser

Given the sharp rise in crude oil prices and growing awareness of climate change, the potential of biofuels, particularly of bioethanol, has become an ubiquitous topic of public debate and has induced ambitious policy initiatives. The latter are mostly paired with protectionist measures as the examples of the European Union and the United States show, where domestic producers of energy crops are put at an advantage thanks to subsidisation, direct payments and/or favourable tax schemes.Moreover, the EU is working out a mandatory certification scheme for ethanol imports, imposing social and environmental standards which constitute another hurdle for more efficiently produced ethanol originating in the Southern hemisphere. A similar path is taken by Switzerland's revised mineral oil tax law which imposes social and environmental criteria which might not only result in a ban of biofuels produced from palm oil, soy and grain, but will also set obstacles for sugarcane-based ethanol which is currently said to be the most eco-efficient biofuel.This paper explores where these policy initiatives are at odds with or at least in a grey area of WTO regulations, and where they disrupt markets without necessarily generating environmental benefits.The findings of our study lead to the conclusion that markets should play a stronger role in expanding the use of biofuels, since many risks affiliated with the biofuel production are caused rather than alleviated by interventionist practices.