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Project Duration: Objectives of project

David Laborde, Betina Dimaranan, and Perrihan Al-Riffai September 2009 - Ongoing

The primary objective of this study is to analyze the impact of possible changes in EU and US biofuels policies, including trade policies on global agricultural markets and land use (environmental) markets. This research pays particular attention to the effects of food prices and the Land Use Changes (LUC), and the associated emissions, of the main feedstock used for first-generation biofuels production.

Research Approach

The research introduces new methodological developments to adapt the MIRAGE model to the biofuels sector. Among major methodological innovations introduced in the model is the new modeling of energy demand which allows for substitutability between different sources of energy, including biofuels. The underlying Global Trade Analysis Project (GTAP) database has been greatly modified to separately identify ethanol (with four subsectors), biodiesel, five additional feedstock crops sectors, four vegetable oils sectors, fertilizers, and the transport fuel sectors. This extension has been introduced using innovative tools to ensure the consistency in both value and volume for the sectors of interests. The model was also modified to account for the co-products generated in the ethanol and biodiesel production processes and their role as inputs to the livestock sector. Fertilizer modeling was also introduced to allow for substitution with land under intensive or extensive crop production methods. Finally, another major innovation is the introduction of a land use module which allows for substitutability between land classes, classified according to agro-ecological zones (AEZs), and land extension possibilities. We assess the greenhouse gas emissions (focusing on CO2) associated with direct and indirect land use changes as generated by the model for the year 2020, and separately quantify the marginal ILUC for each feedstock crop.

This is the only study, out of the four launched by the Commission, that uses a global computable general equilibrium model (CGE) to estimate the impact of EU biofuels policies, in this case an extensively modified version of the existing MIRAGE model.

Progress, Research Results, Major Research Findings, and Impacts or influence in 2010

The central policy scenario translates the 5.6% first-generation biofuels mix in road transport fuels in 2020 into an increase in biofuels consumption in the EU to 17.8 Mtoe. The required increase in biodiesel production is mostly domestic in the EU while the increase in bioethanol production is mostly concentrated in Brazil. World cropland increases by 0.07%, showing that there is indeed indirect land use change associated with the EU biofuels mandate. Direct emission savings from biofuels are estimated at 18 Mt CO2, additional emissions from ILUC at 5.3 Mt CO2 (mostly in Brazil), resulting in a global net balance of nearly 13 Mt CO2 savings in a 20 years horizon.

The model simulations show that the effect of EU biofuels policies on food prices will remain very limited, with a maximum price change on the food bundle of +0.5% in Brazil and +0.14% in Europe. The EU biofuels policy also has no significant real income consequences for the EU, though some countries may experience a slight decline in real income: - 0.11% to -0.18% by 2020 among oil exporters, and -0.12% for Sub-Saharan Africa, due to a decline in fossil oil prices and a rise in food prices, respectively.

Analysis of ILUC effects by crop indicates that ethanol, and particularly sugar-based ethanol, will generate the highest potential gains in terms of net emission savings. For biodiesel, palm oil remains as efficient as rapeseed oil, even if peatland emissions are taken into account. The model also indicates that the ILUC emission coefficients could increase with the size of the EU mandate. Simulations for EU biofuels consumption above 5.6% of road transport fuels show that ILUC emissions can rapidly increase and erode the environmental sustainability of biofuels.

Plans for 2011

While the research work has delivered specific outputs in 2010, subtheme 2.1 will continue to work on this important topic through various other projects in the future.

2010 Internal Program Review-Markets, Trade and Institutions Division

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