Developing biofuels industry in small economies: Policy experiences and lessons from the caribbean basin initiative

With increasing concerns about rising energy demand and cost, diminishing oil reserves, and climate change, Central American and Caribbean (CAC) nations have the opportunity to become producers of low-carbon sustainable biofuels for domestic consumption and foreign exchange earnings. While the region has a number of comparative advantages for developing a vibrant biofuels sector, including favorable climate and significant agricultural experience, the experience under the favorable Caribbean Basin Initiative (CBI) has exposed significant technical and non-technical barriers that must be overcome. Using information compiled through interviews with industry executives, government policy makers and civil society stakeholders, we provide a critical analysis of this experience focusing on non-technical barriers to investment. Survey results suggest that political uncertainty, poor regulatory frameworks, and lack of institutional commitment and business incentives are the main non-technical barriers. Having laid out the challenges, we propose potential policy positions to stimulate growth of the regional biofuels sector. Results point to the need to prioritize enhancing national legislation, developing risk prevention plans, creating supply and demand side incentives and increasing multilateral collaboration. While these findings are derived from the Caribbean Basin experience, they may also be applicable to small economies in other regions that are considering policies for biofuels industry development.