Biofuels and their by-products: Global economic and environmental implications

Abstract

The biofuel industry has been rapidly growing around the world in recent years. Several papers have used general equilibrium models and addressed the economy-wide and environmental consequences of producing biofuels at a large scale. They mainly argue that since biofuels are mostly produced from agricultural sources, their effects are largely felt in agricultural markets with major land use and environmental consequences. In this paper, we argue that virtually all of these studies have overstated the impact of liquid biofuels on agricultural markets due to the fact that they have ignored the role of by-products resulting from the production of biofuels. Feed by-products of the biofuel industry, such as Dried Distillers Grains with Solubles (DDGS) and biodiesel by-products (BDBP) such as soy and rapeseed meals, can be used in the livestock industry as substitutes for grains and oilseed meals used in this industry. Hence, their presence mitigates the price impacts of biofuel production on the livestock and food industries. The importance of incorporating by-products of biofuel production in economic models is well recognized by some partial equilibrium analyses of biofuel production. However, to date, this issue has not been tackled by those conducting CGE analysis of biofuels programs. Accordingly, this paper explicitly introduces DDGS and BDBP, the major by-products of grain based ethanol and biodiesel production processes, into a worldwide CGE model and analyzes the economic and environmental impacts of regional and international mandate policies designed to stimulate bioenergy production and use. We first explicitly introduce by-products of biofuel production into the GTAP-BIO database, originally developed by Taheripour et al. (2007). Then we explicitly bring in DDGS 3 and BDBP into the Energy-Environmental version of the Global Trade Analysis Project (GTAP-E) model, originally developed by Burniaux and Truong (2002), and recently modified by McDougall and Golub (2007) and Birur, Hertel, and Tyner (2008). The structure of the GTAP-E model is redesigned to handle the production and consumption of biofuels and their by-products, in particular DDGS, across the world. Unlike many CGE models which are characterized by single product sectors, here grain based ethanol and DDGS jointly are produced by an industry, named EthanolC. The biodiesel industry also produces two products of biodiesel and BDBP jointly. This paper divides the world economy into 22 commodities, 20 industries, and 18 regions and then examines global impacts of the US Energy Independence and Security Act of 2007 and the European Union mandates for promoting biofuel production in the presence of by-products. We show that models with and without by-products demonstrate different portraits from the economic impacts of international biofuel mandates for the world economy in 2015. While both models demonstrate significant changes in the agricultural production pattern across the world, the model with by-products shows smaller changes in the production ...

Biofuel and Food-Commodity Prices

“…The empirical analysis of Serra et al suggests that in periods of high corn prices, the price of corn becomes the dominant factor in price determination. This complements the results of references [5] and [6], both of whom suggest that when the price of ethanol does not fully adjust to the rise in the price of corn, the corn biorefineries may suffer losses when corn prices are high. Similar techniques were used by Zhang et al, who investigated the volatility of the wholesale prices of corn, ethanol, soybeans, gasoline, and oil in the United States between March 1989 and December 2007 [7].…”

The Global Impacts of Biofuel Mandates

“…A similar situation arises with biodiesel production from oilseeds. Taheripour et al (2008) show that ignoring the by-products of biofuels leads researchers to significantly overstate the impact of mandates. They incorporate DDGS and vegetable oil cake (soybean meal in the US and rapeseed cake in EU) and introduce substitution between biofuel by-products and other animal feed in livestock production.…”

Biofuels and Land Use Change: Applying Recent Evidence to Model Estimates

“…The early papers published in this area suggested that the USA corn ethanol program could cause major land use implications [4][5][6]. However, the more recent studies find that the early estimates have overstated the land use implications of this program [7][8][9][10][11][12][13].…”

“…This global CGE model, developed at the Center for Global Trade Analyses, has played a leading role in estimating biofuel induced land use changes. Several studies have used this model to evaluate iLUC emissions due to biofuels [7,[10][11][12]17,18]. This model uses two different land transformation elasticities to govern the supply of land in each region.…”