Ethanol for an agriculture-based developing economy: A computable general equilibrium assessment for Uganda

Miria Nakamya,Eirik Romstad

doi:10.1016/j.esd.2020.10.003

Abstract

This study uses a static computable general equilibrium (CGE) model to examine the potential economic impacts of ethanol production in Uganda. We introduce an ethanol sector in the 2016/17 Uganda's social accounting matrix (SAM) using maize, cassava, sugarcane, and molasses as feedstocks. Furthermore, we evaluate the suitability of each feedstock. By simulating a 10% blending mandate, we find that factor employment and total output would increase, with a sluggish rise in commodity prices. Real GDP would grow moderately, and household income increase, mostly for the rural households. Household welfare would decline because of a counter-financing tax on gasoline. A reduction in gasoline imports is likely to improve the trade balance, and despite the ensuing decline in import tax revenues, government income would still rise. Our results are suggestive of ethanol production as a potential pro-poor project for Uganda. Both sugarcane and maize are more growth-enhancing compared to cassava. The use of only molasses from the sugar industry may result in negative impacts since it is already an input in other activities. We also observe that using an average of multiple feedstocks would be more sustainable. Moreover, it would allow a more balanced growth while reducing upward price pressures.

Highlights

Introduction and motivationethanol-collecting sector (Ethanol) is one of the conventional liquid biofuels mainly used in transport and industrial processes
Our main research question is: what impacts might ethanol production and mandatory blending have on Uganda's economy? We address this question by explicitly examining the economic impacts on (i) employment, output, and prices, (ii) household income and welfare, (iii) the trade balance, government income, and overall economic growth
While first-generation biodiesel is obtained from oilseed crops, first-generation ethanol is produced from feedstocks that contain sugar; for example, sugar beet, sugarcane, and molasses

Summary

Introduction and motivation

Ethanol is one of the conventional liquid biofuels mainly used in transport and industrial processes. Majority of studies have confirmed a positive correlation between biofuels and feedstock (and food) prices (see Elizondo & Boyd, 2017; Timilsina, Beghin, Van der Mensbrugghe, & Mevel, 2010; Wianwiwat & Asafu-Adjaye, 2013) It is, logical to expect that promoting biofuels would strengthen crop markets, especially in periods of excess harvest, during which prices usually plummet. While first-generation biodiesel is obtained from oilseed crops, first-generation ethanol is produced from feedstocks that contain sugar; for example, sugar beet, sugarcane, and molasses It can be obtained from starch crops such as maize, cassava, banana, and sweet sorghum. The National Environment Management Authority (NEMA) report identifies Jatropha curcas, maize, sugarcane, and oil palm as potential biofuels feedstocks (NEMA, 2010)

Materials and methods

Results and discussion

Conclusion and policy implications