People invariably ask, given we have only recently started in this business, why did we choose to work on biofuels?

In deciding research priorities we have several criteria. One is that we would not try to duplicate the work of others. Another is that when we look into subsidies to a particular sector, the sector should be one that is subsidized by many countries. Third, we would give priority to examining subsidies that are likely to affect the development prospects of developing countries, or the environment, and especially if they affect both. Subsidies to biofuels meet all of these criteria. (Subsidies to fossil fuels - which we hope to start examining in 2007 - also meet all of these criteria.)

Our decision last December to embark on these studies has proved more prescient than we could have imagined. The world, but especially the United States, is witnessing unprecedented investment in the biofuels sector. As one of our team observed, "When you find yourself in the midst of a feeding frenzy, it is time to check the bait."

Subsidies for liquid biofuels in the USA are currently in the neighbourhood of USD 6½ billion a year and rising fast. The bulk of support benefiting biofuels in the USA is directly linked to production, and that means that as production rises so will subsidies under the main programs. And production will rise, because consumption is mandated to rise.

Given the hundreds of federal and state programs subsidizing the biofuel supply chain, from the feedstock crops to the gas stations that dispense the fuels, it is unlikely that policymakers have had more than a vague idea of the total amount of public money flowing into the sector. The industry itself is much savvier, however: the study shows also that it is not uncommon for companies to tap into multiple sources of government funds when financing new plants.

Were the United States to apply no tariff on imported ethanol, more of its consumption would be met by lower-cost, developing-country producers, especially Brazil. But true to the agricultural origins of biofuel policies, trade is discouraged. In that regard, the USA is hardly alone. The European Union, for example, applies a €0.192 (USD 0.24) per litre tariff on undenatured ethanol imported from Brazil, which is almost 70 percent higher than the U.S. tariff of 2.2 percent plus USD 0.1427 per litre. The maintenance of such high tariffs seems at odds with policies that are supposed to be encouraging greater use of biofuels.

Biofuels are promoted as a means to wean countries from petroleum, and to address concerns over climate change. Accordingly, in addition to estimating total support for the industry, the U.S. study examines the rate of subsidization for ethanol and biodiesel as a function of petroleum displaced and greenhouse gas emissions avoided. While biofuels can contribute to both of these policy goals, with current production methods the subsidy cost per unit of petroleum or CO2-equivalent displaced is enormous - as much as 140 times the price of an offset on the Chicago Mercantile Exchange - suggesting that other options may offer more cost-effective solutions.

When rapid growth depends so much on government intervention in the market, the possibilities that there will be unintended consequences are not only enormous, but virtually certain. Current biofuel policies are aimed, after all, at stimulating a major new demand for crops on a scale heretofore never imagined in most countries without fundamentally changing the arcane system of government policies that has evolved over a century and a half to support and protect domestic agriculture.

The extensive and deep political support that biofuels have enjoyed of late has surrounded them with an aura of inevitability. Yet there has never been a more-urgent need to measure the amount of public funds being spent on them, and compare that with the costs of meeting the same goals in other, perhaps more sustainable, ways.

Ronald Steenblik is the director of research at the Global Subsidies Initiative.