Impact of EU Biofuel Policies on World Agricultural and Food Markets

Abstract

World-wide production of biofuels is quickly growing. Apart from the EU and the US other countries like Canada, Brazil, Australia, India and China also implemented targets for biofuels volumes and market shares. While in these countries and regions biofuel production is driven by policies such as tax exemptions, investment subsidies and obligatory blending of biofuels with fuels derived from mineral oil, biofuels production and consumption at global scale is increasing driven by high energy prices. This boost either due to ‘pure’ market forces and/or also ‘policy’ driven has significant impacts on agricultural markets, including an impact on trade in agricultural raw materials. Linkages between food and energy production include the competition for land, but also for other production inputs, and the effect of an increasing supply of by-products of biofuel production such as oil cake and gluten feed affecting animal production. An extended version of the GTAP model explicitly depicts the use of cereals, vegetable oils and sugar-beet or –cane as inputs in the production of bioenergy in a multi-level structure in the petroleum activity. This extension enables to analyze the impact of targeted policies such as tax exemptions and obligatory blending for the petroleum sector for individual regions and countries. This paper will draw less attention on the presentation of the methodological aspects of modeling biofuels in GTAP but will focus more on the implications of growing biofuels markets. It will therefore contribute to the current discussion on growing competition between agricultural products used for food, feed and fuel purposes.