Will EU biofuel policies affect global agricultural markets?

Abstract

This paper assesses the global and sectoral implications of the European Union Biofuels Directive (BFD) in a multi-region computable general equilibrium framework with endogenous determination of land supply. The results show that, without mandatory blending policies or subsidies to stimulate the use of biofuel crops in the petroleum sector, the targets of the BFD will not be met in 2010 and 2020. With a mandatory blending policy, the enhanced demand for biofuel crops has a strong impact on agriculture at the global and European levels. The additional demand from the energy sector leads to an increase in global land use and, ultimately, a decrease in biodiversity. The development, on the other hand, might slow or reverse the long-term process of declining real agricultural prices. Moreover, assuming a further liberalization of the European agricultural market imports of biofuels are expected to increase to more than 50% of the total biofuel demand in Europe. Preface This paper assesses the global and sectoral implications of the European Union Biofuels Directive (BFD) in a multi-region computable general equilibrium framework with endogenous determination of land supply. The results show that, without mandatory blending policies or subsidies to stimulate the use of biofuel crops in the petroleum sector, the targets of the BFD will not be met in 2010 and 2020. With a mandatory blending policy, the enhanced demand for biofuel crops has a strong impact on agriculture at the global and European levels. The additional demand from the energy sector leads to an increase in global land use and, ultimately, a decrease in biodiversity. The development, on the other hand, might slow or reverse the long-term process of declining real agricultural prices. Moreover, assuming a further liberalization of the European agricultural market imports of biofuels are expected to increase to more than 50% of the total biofuel demand in Europe. This work builds forward on the methodlogy developed in the EUruralis project financed by the Dutch Ministry of Agriculture, Nature and Food Quality. In the EUruralis project the GTAP model is extended with first generation biofuels and land markets (Rienks, 2008, Eickhout and Prins 2008). Two methodological improvements which are essential to assess the impact of biofuels and biofuel policies. In this paper we assess the impact of the EU biofuel directive, in another LEI working paper that will appear soon, we assess the the global and sectoral implications of policy initiatives in different countries or regions (e.g. the U.S., the EU, Canada, South Africa or Japan) to enhance bioenergy demand and production.

Framing Sustainability in a Telecoupled World

“…A poignant example involves biofuels. Biofuel mandates, such as in the European Union (EU) and the United States, have significant ramifications for food prices and carbon footprints because producing biofuel domestically may take land away from food production and importing large quantities of biomass over long distances, e. g., imports to EU from Africa, Asia, and the Americas, emits substantial amounts of CO 2 and affects land use elsewhere (Banse et al 2008). The increase in food prices and overall reduction in food production due in part to the growing demand for biofuels Babcock 2010, Swinton et al 2011) contributed to global food shortages in 2008 and civil unrest in many nations.…”

The economic effects of the EU biofuel target

“…The main findings in those studies are that overall the negative welfare and competitiveness effects are rather small but that the separated carbon markets may lead to substantial inefficiencies. In addition, two studies analyze the effects of the EU 10% biofuel targets (Banse et al, 2008;Boeters et al, 2008). Banse et al (2008) find a considerable impact of European biofuel policy on the global and European agricultural markets with higher feedstock prices and expansion of global agricultural land use especially due to increases in land-abundant countries.…”

“…In addition, two studies analyze the effects of the EU 10% biofuel targets (Banse et al, 2008;Boeters et al, 2008). Banse et al (2008) find a considerable impact of European biofuel policy on the global and European agricultural markets with higher feedstock prices and expansion of global agricultural land use especially due to increases in land-abundant countries. Boeters et al (2008) find only small impacts on agricultural prices and focus on the interaction of European biofuel policy and the EU ETS in their analysis.…”

Wanted: institutions for balancing global food and energy markets

“…Various observers expect that biofuels will have an upward effect on international food prices in the years to come (OECD-FAO 2008). Banse et al (2008b) project that the proposed 10% mandatory biofuel use in EU gasoline (draft EU directive on promotion of the use of energy from renewable sources) and biofuel initiatives of other countries will change a 13% decrease in cereal prices between 2001 and 2020 into a 6% increase, and a 7% decrease in oilseed prices into a 19% increase. How the competition between foods and biobased non-foods will evolve in the longer term is highly unpredictable.…”