Abstract
For two decades, the Thai government has been promoting ethanol and biodiesel consumption through tax measures and price subsidies. Although this policy has substantially increased the consumption and production of biofuels, there is concern regarding its future fiscal burden. Due to fiscal constraints, the Thai government has planned to completely terminate the biofuel subsidy by 2022. This study aims at examining the economy-wide impacts of removing the biofuel subsidy and also conducting simulations of alternative scenarios, i.e., improving the yield of energy crops and reallocating the burden to expand capital investment in energy crop plantations. A recursive dynamic computable general equilibrium (CGE) model was used as the main quantitative method to conduct four simulation scenarios. This model was validated by comparing the simulation results with the actual 2015–2019 data and showed low values of root mean square error (RMSE). The simulation results indicate that solely terminating the price subsidy would lead to economy-wide contraction. Meanwhile, eliminating the price subsidy along with influencing crop yield improvement and expanding capital investment in energy crop plantations would lead to the lowest negative impacts. Therefore, the termination of the price subsidy should be simultaneously implemented with supply-side expansions.
Highlights
Given the scarcity of fossil energy resources, Thailand must import an enormous amount of energy, i.e., over 60% of its total domestic energy consumption annually [1], which results in a substantial economic loss every year
On the basis of the description above, in this study, we focus on three policy options, namely (1) elimination of biofuel subsidy, (2) reallocation of the biofuel subsidy to investments in energy crop plantations, and (3) TFP enhancement of energy crops
This study indicated that, the oil fund has been used for the biofuel subsidy to promote green energy, it has ignited energy market intervention
Summary
Given the scarcity of fossil energy resources, Thailand must import an enormous amount of energy, i.e., over 60% of its total domestic energy consumption annually [1], which results in a substantial economic loss every year. The Thai government has placed importance on renewable energy development to replace fossil energy, especially biofuels used in the transportation sector. The government has driven biofuel production and consumption via tax measures and pricing policy, especially biofuel subsidies using an oil fund [2]. Energy crop farmers are indirect beneficiaries of the oil fund [5]; to compensate for biofuel prices, the government must provide a considerable budget, which, inevitably, affects the liquidity of the oil fund
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