Under certain conditions, biofuels have the potential to emerge as a competitor to oil in the coming decades, particularly in the transportation sector. This is most likely to occur if a global carbon reduction policy is adopted that creates a strong market incentive for investments in both R&D and infrastructure for such fuels. The United States and Brazil currently account for more than 70 percent of global ethanol production, but other countries in Latin America and elsewhere could be poised to participate in an expanded international biofuels market.87 This would help to offset some of the geostrategic importance of oil suppliers.88 China could be a significant biomass fuel consumer, as it would rather import this fuel than sacrifice food crops for energy crops, particularly if its food security is threatened by climate change. Japan already imports ethanol from Brazil.
The biofuels market will need to be managed effectively in order for it to grow to scale and avoid replicating some of the flaws that plague the fossil fuel market. This requires developing and implementing policies that minimize the total "fields to wheels" carbon emissions from biofuels (which includes emissions from any fossil fuel used to raise energy crops, refine these crops into fuel, and distribute the fuel to consumers).89 It is also important to consider nonenvironmental externalities, such as the impact that replacing food crops with energy crops could have on food prices around the world. Although to date productivity gains have enabled U.S. farmers to raise sufficient quantities of crops to meet demand for both food and fuel, policymakers will need to monitor this issue closely if demand continues to increase.
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