Abstract
The emergence of biofuel as a renewable energy source offers opportunities for climate change mitigation and greater energy security for many countries. At the same time, biofuel represents the possibility of substitution between energy and food. For developing countries like India, which imports over 75% of its crude oil, fossil fuels pose two risks — global warming pollution and negative economic impacts of oil price hikes. This paper examines India’s options for managing energy price risk in three ways: biofuel development, energy efficiency promotion, and food productivity improvements. The overall results suggest that biodiesel shows promise as a transport fuel substitute that can be produced in ways that fully utilize marginal agricultural resources and hence promote rural livelihoods. First-generation bioethanol, by contrast, appears to have a limited ability to offset the impacts of oil price hikes. Combining the biodiesel expansion policy with energy efficiency improvements and food productivity increases proved to be a more effective strategy to enhance both energy and food security, help mitigate climate change, and cushion the economy against oil price shocks.
Highlights
New sources of renewable energy like biofuels offer opportunities for reducing reliance on fossil fuels and climate change mitigation
Energy imports will be reduced by about 28% due to slower growth in the economy, and energy price inflation will be close to the oil price increase
This paper examines these issues for India from the perspective of global market forces and domestic policy responses
Summary
New sources of renewable energy like biofuels offer opportunities for reducing reliance on fossil fuels and climate change mitigation. If about 32 million hectares of waste lands can be cultivated as oilseed plantations, together with modest productivity improvements, about 20 billion liters of biodiesel can be produced. This amount is sufficient to replace 20% of the national petroleum diesel requirement in 2017 (Gunatilake 2011). In this paper we broaden this analysis considering both bioethanol and biodiesel and using a global CGE model incorporating other available policy options such as energy efficiency and food productivity improvements to understand the role of biofuels in India within a broader policy framework
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