Meeting the Mandate for Biofuels: Implications for Land Use, Food and Fuel Prices

Abstract

Biofuel production is being promoted through various policies such as mandates and tax credits. This paper uses a dynamic, spatial, multi-market equilibrium model, Biofuel and Environmental Policy Analysis Model (BEPAM), to estimate the effects of these policies on cropland allocation, food and fuel prices, and the mix of biofuels from corn and cellulosic feedstocks over the 2007-2022 period. We find that the biofuel mandate will increase corn price by 24%, reduce the price of gasoline by 8% in 2022, and increase social welfare by $122 B (0.7%) relative to Business As Usual scenario. The provision of volumetric tax credits that accompany the mandate significantly changes the mix of biofuels produced in favor of cellulosic biofuels and reduces the share of corn ethanol in the cumulative volume of biofuels produced from 50% to 10%. The tax credits reduce the adverse impact of the mandate alone on crop prices and decrease the price of biofuels. However, they impose a welfare cost of $79 B compared to the mandate alone. These results are found to be sensitive to the rate of growth of crop productivity, the costs of production of bioenergy crops, and the availability of marginal land for producing bioenergy crops.

The Impacts of the Food, Fuel and Financial Crises on Households in Nigeria: A Retrospective Approach for Research Enquiry

“…This substitution effect was first observed as far back as the 1980s (Barnard 1983) and von Urff (2007) provided a detailed analysis of the resource trade-off between food and bio-fuel production. Chen et al (2011) also analyse the adverse impact of bio-fuels on food production. However, it is important to note that although there may be (positive) correlation between fuel and food prices, and that fuel price changes may induce short-run price increases, the pass-through rate and impacts are low in labour-intensive agricultural systems, such as the Nigerian.…”

Biofuel and Food-Commodity Prices

“…The multimarket models also fit among this strand of the literature and include [17] and [18]. Those authors developed a multimarket model to assess the impact of biofuel on fuel and food, emphasizing (i) heterogeneity of land productivity, (ii) multiple crops, and (iii) the relationship between crops and livestock.…”

The Post 2008 Food Before Fuel Crisis: Theory, Literature, and Policies

“…Since the Energy Act of 2005, a stronger relationship between corn and biofuel (ethanol) has emerged (Muhammad and Kebed, 2009). Although still questionable, biofuel is considered a key transmitter of energy prices to the agricultural prices (Arndt et al, 2008;Chakravorty et al, 2009;Chen et al, 2011;Hochman et al 2010;Ignacuik and Dellink, 2006;Runge and Senauer, 2007;Lazear, 2008;Mitchell, 2008;Muhammad and Kebed, 2009;Sexton et al, 2009;Taheripour and Tyner, 2008;Yahaya, 2006). Recently, corn price volatility has contributed to the integration between the energy market and the agricultural commodity market (Mcphail and Babcock, 2008).…”

“…U.S. and EU government policies providing incentives for biofuel production should be reconsidered in light of their impact on short-run food prices (Chen et al 2011). As an example, increasing the U.S. Corporate Average Fuel Economy (CAFÉ) standard would cost approximately a third as much as it costs to subsidize ethanol (Doering, 2006).…”