Editor's note: The Global Subsidies Initiative is currently in the process of finalizing six country studies on subsidies to liquid biofuels. These studies are slated for release by the end of October 2006. For more information, contact us at info@globalsubsidies.org

The business of biofuels is booming. Rarely has a product of agriculture seen its market expand by double-digit growth rates year in and year out. But that is exactly what is happening as a result of the phenomenal demand for alternatives to petroleum-derived gasoline and diesel: respectively, bio-ethanol and biodiesel.

Much of the growth in demand and production has been fuelled by border protection, subsidies, government procurement, tax relief and rebates, as well as by mandated shares in total transport fuel sales. These incentives have been provided within an already distorted agricultural economy - one through which hundreds of billions of dollars in support are channelled each year - and an energy market characterized by massive state intervention and special tax treatment.

Government support to biofuels - monetary and non-monetary - has lately been promoted under the banner of energy security and the environment. Yet the degree to which biofuels offer an environmentally and economically sustainable alternative to gasoline and diesel is a matter of hot debate.

Particularly in the United States, skeptics have challenged the notion that biofuels promise a "green bullet" solution to America's energy woes: a means to wean itself off of Middle Eastern oil, appease farmers whose subsidies are increasingly under attack, and slow the process of climate change, all in one fell swoop.

But the United States' government is not alone in its eagerness to promote biofuels; many other governments have initiated similar policies. Work undertaken by and for the Global Subsidies Initiative show that Australia, Canada, the EU (and its Member States) and Switzerland also provide multi-layered support to encourage the production and use of biofuels.

For this month's Subsidy Watch, we reproduce two commentaries, recently published elsewhere, that in the GSI's opinion provide some excellent insights into government policies toward biofuels in their regions. Michael O'Hare, a professor of public policy at the University of California, Berkley, argues that misguided policies in the United States are driving biofuels in a way that does little for the environment, while gouging the pockets of taxpayers and consumers. Gavin Chua Hearn Yuit and Jardine Wall, researchers at the Singapore Institute for International Affairs, reveal that Asian governments have also jumped onto the biofuel bandwagon. Here too, there are costs to the environment which have yet to be fully examined.

Biofuels may be booming, but at what price, and who foots the bill?