Biofuels Development Strategy

A Case Study of the Dominican Republic

The Dominican Republic is well positioned to benefit from the development of an ethanol industry.  It has adequate land resources and, under favorable market conditions, can produce ethanol cost-competitively for both domestic consumption and export.

Current market prices, however, have not been adequate to spur industry development.  In these circumstances, the Dominican Republic government may wish to act to encourage the development of an ethanol industry.  However, given the Dominican Republic's position as a country exempt from tariffs on exports of ethanol to the United States, one strategy the Dominican Republic should not pursue is an ethanol mandate. A mandate acts as an export barrier eliminating potentially valuable arbitrage opportunities between ethanol and gasoline. Furthermore, the environmental and energy security benefits of domestic ethanol consumption either do not apply to the Dominican Republic or are too poorly understood to justify mandated consumption.

As long as the Dominican Republic retains privileged access to U.S. and European ethanol markets, an export-led strategy ethanol development strategy will the greatest economic benefits. Even if ethanol becomes cheaper than gasoline, the Dominican Republic would still profit more by exporting domestic ethanol to the protected U.S. and EU markets, and importing cheaper ethanol at lower world prices.

The circumstances of the Dominican Republic are common to many developing nations considering biofuels development. The framework approach used in this paper and its conclusions may be applicable to biofuels initiatives in other developing nations.