The Regional Impact of Biofuel Economics

Abstract

The European Commission has developed a series of regulatory measures to introduce alternative energy technologies, including a binding target for a specified share of biofuel in petrol and diesel, in European Union (EU) member states. The instruments to achieve this goal include taxation, subsidies and legal restraints. Biofuel suffers from the problem of being uncompetitive, and the intervention addresses the price gap between conventional fuel and biofuel. The enthusiasm for biofuel is particularly high in peripheral regions such as the northern provinces of Sweden and Finland. Expectations include renewed economic growth and employment opportunities. However, when studying the economic impact of the biofuel regulatory framework with the help of the concept of property economics, it becomes clear that the framework generates investment in biofuel production due to distorted price signals and expected profits. From the perspective of property economics, the biofuel framework challenges property rights as it requires people’s appropriated means to be put into the effort of biofuel production. The artificial change of investment conditions may lead to the formation of an investment bubble. This distorts the interweaving structure of capital goods, which contributes to the manufacturing of biofuel, including machinery and wood products. As bubbles are bound to burst, people in the affected territories may be left with a lower living standard and greater exposure to the consequences. Therefore, the biofuel regulatory framework leads to unsustainable conditions. JEL Classification: O10, O20