Skip to main content

International Policies on Bioenergy and Biofuels

  • Chapter
  • First Online:
Industrial Crops

Part of the book series: Handbook of Plant Breeding ((HBPB,volume 9))

Abstract

This chapter provides an overview of international biofuel polices and their main impacts on food prices and land use. Global biofuel production has experienced a rapid growth by increasing from almost a zero level in 1970 to 29 billion gallons in 2011; the United States, the European Union, and Brazil account for around 90 % of the global biofuel production. Biofuel policies are widely implemented in most developed and many developing countries. Most commonly used biofuel policy instruments are biofuel mandates and consumption subsidies (tax credit and tax exemptions). These policies determine biofuel prices, depending on which instrument is binding. Biofuels may also have unintended effects on other markets. In particular, interlinkages between biofuel and agricultural productions lead to food price responses and land use adjustments.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 129.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 169.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 169.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    The International Energy Agency (IEA) differentiates between “conventional” and “advanced” biofuels. The distinction is based on the maturity of a technology. Conventional biofuel technologies include well-established technologies that are already producing biofuels on a commercial scale. These biofuels are commonly referred to as first-generation biofuels. Typical biomass used for first-generation biofuels includes sugarcane, sugar beets, corn, wheat, rapeseed, soybean, or palm oil. Advanced biofuel technologies are conversion technologies that are still in the research and development, pilot, or demonstration phase, commonly referred to as second- or third-generation technologies. These biofuels are made from lignocellulosic biomass, woody crops, agricultural residues, or waste [2].

  2. 2.

    de Gorter et al. [5] provide arguments for why these reasons are not justified in reality.

  3. 3.

    The largest use of ethanol and biodiesel is as a motor fuel and fuel additive. Other uses of ethanol and biodiesel include industrial and residential consumption and represent a small proportion of total production (less than 2 %) [22].

  4. 4.

    The EU mandate is termed a “target.”

  5. 5.

    The differing approaches to implementation of blend mandates mean that, for example, a 10 % volumetric mandate in the United States will have different effects on the market outcome compared to a 10 % energy blend requirement in the European Union. This happens, other things equal, because a lower energy content of biofuels relative to fossil fuels makes an energy blend mandate translate into a higher volumetric blend mandate.

  6. 6.

    Because under the blend mandate the quantity of biofuel is proportional to consumption of fuel which in turn depends on the oil price, the price of biofuel is determined by the interaction between the fuel and feedstock markets. Contrast this with how the biofuel price is determined under a consumption mandate.

  7. 7.

    There are two types of ethanol used in Brazil: hydrous (contains water) and anhydrous (water-free). Gasoline can only be blended with anhydrous ethanol. The use of hydrous ethanol is not mandated.

  8. 8.

    The European Union is currently considering introduction of a 5 to 7 percent cap on the amount of first-generation biofuels in the EU’s 2020 transportation mix. This would be a reduction from the 10 (energy) percent target discussed earlier.

  9. 9.

    Technically, with the tax credit blenders pay the full fuel tax on the fuel sold, regardless of the biofuel’s share. At the end of the fiscal year, they are subsequently reimbursed for the discount on the biofuel (proportional to the biofuel’s share in total fuel volume) provided to the fuel consumers throughout the year. With the tax exemption, the blender directly collects a lower tax on the volume of biofuel in the fuel mixture.

  10. 10.

    The Producer Support Estimate is an indicator of the annual monetary value of gross transfers to farmers.

  11. 11.

    This does not hold in general, however. Under a binding tax credit, the biofuel market price is directly linked to the oil price; hence, it does not respond to any changes in the feedstock market [16, 45]. The incidence of the feedstock subsidies is then to increase the quantity of biofuel produced.

  12. 12.

    The indirect land use change is just one form market leakage of biofuel policies. According to Drabik and de Gorter [18], the leakage in the fuel market itself is much bigger.

  13. 13.

    For ethanol, λ ≈ 0.70, while for biodiesel λ ≈ 0.90.

  14. 14.

    It is important to note that the impact of biofuel policies (tax exemptions, tax credits, or price premia due to biofuel mandates) on biofuel prices is not additive: the market price of a biofuel is not determined by the sum of each country’s tax exemption, tax credit, or a mandate price premium.

  15. 15.

    It is expected that the second-generation biofuels may have lower impact on food prices than first-generation biofuels because of having less intensive demand for agricultural land due to their higher biomass yields and/or due to using residues from agriculture. As a result, second-generation biofuels may lead to lesser competition between biofuels and food demand for agricultural commodities, hence posing lower pressure on food price increase [53]. However, this result may not hold in general. In particular, it depends on the origin of feedstock used for the second-generation biofuels. Havlik et al. [54] find that if second-generation biofuels are produced on agricultural land, they result in higher food price increase than the first-generation biofuels, whereas if second-generation biofuels are sourced from traditional forests or marginal lands, then they result in lower food price increases. In this section, we focus on the first-generation biofuels’ impact on food prices as there is more research done in this direction and the second-generation biofuels’ effects are more difficult to be empirically evaluated given that they are not commercially exploited at a larger scale yet.

  16. 16.

    de Gorter and Just [51] derive a theoretical link between ethanol and corn prices, where a $1/gal increase in the ethanol price results in a $4/bushel increase in the corn price. Using cash prices, Drabik [16] shows this theoretical link holds also empirically. Mallory et al. [55] lent support to this relationship using futures prices.

  17. 17.

    Two types of approaches have been followed in the empirical literature. First, time series econometric analyses were performed to estimate the long-run relationship between fuel and food prices [7, 50, 62, 63]. Second, partial and general equilibrium models have been developed to simulate the interdependencies between agricultural, biofuel, and energy markets [e.g., 64]. Further, studies either investigate directly the impact of biofuels (production or prices) on food prices or indirectly through crude oil prices. The studies using the second approach may overstate the overall effect because crude oil price impacts agricultural sector not only through the biofuel channel but also through the indirect input channel.

  18. 18.

    Other studies that find a lower impact of biofuels on food prices include [6769].

  19. 19.

    Their findings indicate a small and statistically insignificant transmission between crude oil price and agricultural commodity prices through the indirect input channel.

References

  1. fao.org. The state of food and agriculture [Internet]. 2008. Rome: Food and Agriculture Organization. FAO database. 2008 [cited 2011 Dec 1]. Available from: ftp://ftp.fao.org/docrep/fao/011/i0100e/i0100e.pdf

  2. iea.org. World energy outlook [Internet]. 2011. Paris: International Energy Agency (IEA/OECD). 2011 [cited 2012 Aug 12]. Available from: http://www.worldenergyoutlook.org/publications/weo-2011/

  3. earth.policy.org. Earth policy institute database [Internet]. 2012 [cited 2012 Aug 12]. Available from: http://www.earth-policy.org/data_center/

  4. de Gorter H, Just DR. The social costs and benefits of biofuels: the intersection of environmental, energy and agricultural policy. Appl Econ Perspect Policy. 2010;32(1):4–32.

    Article  Google Scholar 

  5. de Gorter H, Drabik D, Just DR. The perverse effects of biofuel public-sector policies. Annu Rev Resour Econ. 2013;5:463–483.

    Article  Google Scholar 

  6. Al-Riffai P, Dimaranan B, Laborde D. European Union and United States biofuel mandates: impacts on world markets. Washington: Inter-American Development Bank; 2010.

    Google Scholar 

  7. Campiche LJ, Bryant HL, Richardson JW, Outlaw JL. Examining the evolving correspondence between petroleum prices and agricultural commodity prices. Selected Paper Prepared for Presentation at the American Agricultural Economics Association Annual Meeting; 2007 July 29-Aug 1. Portland, OR; 2007.

    Google Scholar 

  8. Moschini GC, Cui J, Lapan H. Economics of biofuels: an overview of policies, impacts and prospects. Paper prepared for presentation at the 1st AIEAA Conference ‘Towards a Sustainable Bio-economy: economic issues and policy challenges’; 2012 June 4–5. Trento, Italy; 2012.

    Google Scholar 

  9. Tollefson L, Madramootoo C. Irrigated biofuel production in Canada. Global biofuel production. 2012 [cited 2012 Nov 1]. Available from: http://ppts.icidonline.org/adelaide/adel_bio_1.pdf

  10. Ciaian P, Kancs D. Interdependencies in the energy-bioenergy-food price systems: a cointegration analysis. Resour Energy Econ. 2011;33:326–48.

    Article  Google Scholar 

  11. de Gorter H, Just DR. The economics of a blend mandate for biofuels. Am J Agric Econ. 2009;91(3):738–50.

    Article  Google Scholar 

  12. de Gorter H, Just DR. The welfare economics of a biofuel tax credit and the interaction effects with price contingent farm subsidies. Am J Agric Econ. 2009;91(2):477–88.

    Article  Google Scholar 

  13. Gardebroek C. Do oil prices increase corn price volatility? Paper presented at the IATRC meeting; 2010 Dec 12–14. Berkeley, CA; 2010.

    Google Scholar 

  14. Kancs D. Applied general equilibrium analysis of renewable energy policies. Int J Sustainable Energy. 2007;27:1–20.

    Google Scholar 

  15. Baier S, Clements M, Griffiths C, Ihrig J. Biofuels impact on crop and food prices: using an interactive spreadsheet. [cited 2012 Aug 12]. FRB international finance discussion paper no. 967. Available from: http://dx.doi.org/10.2139/ssrn.1372839; Mar 25, 2009.

  16. Drabik D. The theory of biofuel policy and food grain prices. Charles H. Dyson School of Applied Economics and Management, working paper no. 2011–20, Cornell University; Dec 12, 2011.

    Google Scholar 

  17. Rahim AS, Zariyawati MA, Shahwahid HOM. The relationship between selected Malaysian commodity prices and world crude oil prices: an ARDL approach. In: Proceedings of the international conference on business and information 2009; 2009 July 06–08. Kuala Lumpur; 2009.

    Google Scholar 

  18. Drabik D, de Gorter H. Biofuel policies and carbon leakage. AgBioForum. 2012;14(3):104–10.

    Google Scholar 

  19. Piroli G, Ciaian P, Kancs D. Land use change impacts of biofuels: near-VAR evidence from the US. Ecol Econ. 2012;84:98–109. http://dx.doi.org/10.1016/j.ecolecon.2012.09.007.

    Article  Google Scholar 

  20. Searchinger T, Heimlich R, Houghton RA, Dong F, Elobeid A, Fabiosa J, et al. Use of U.S. croplands for biofuels increases greenhouse gases through emissions from land use change. Science. 2008;319:1238–40.

    Article  CAS  PubMed  Google Scholar 

  21. eia.gov. U.S. Energy information administration database [Internet]. 2012. Available from: http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=79&pid=79&aid=1. Accessed 12 Aug 2012.

  22. iea.org. Paris: International Energy Agency Statistics [Internet]. 2013. Available from: http://www.iea.org/stats/renewdata.asp?COUNTRY_CODE=29. Accessed 8 Jan 2013.

  23. Mandil C, Shihab-Eldin A. Assessment of biofuels potential and limitations. A Report commissioned by the International Energy Forum, Feb 2010.

    Google Scholar 

  24. Al-Riffai P, Dimaranan B, Laborde D. Global trade and environmental impact study of the EU biofuels mandate. Final Draft Report. International Food Policy Institute (IFPRI); March 2010. Contract No.: SI2.537.787 implementing Framework Contract No.: TRADE/07/A2.

    Google Scholar 

  25. iea.org. World energy outlook [Internet]. 2010. Paris: International Energy Agency (IEA/OECD). 2010 [cited 2012 Aug 12]. Available from: http://www.iea.org/publications/freepublications/publication/weo2010-1.pdf

  26. ieabioenergy.com. Biomass hot issue: smart choices in difficult times [Internet]. July 2008. Available from: http://www.ieabioenergy.com/MediaItem.aspx?id=5950. Accessed 12 Aug 2012.

  27. Reinhardt GA, Jungk N. Pros and cons of RME compared to conventional diesel fuel. In: Proceedings of the international colloquium on fuels; 2001 Jan 17–18. Esslingen; 2001.

    Google Scholar 

  28. reuk.co.uk. Renewable energy UK. Jatropha for biodiesel figures [Internet]. 2013. Available from: http://www.reuk.co.uk/Jatropha-for-Biodiesel-Figures.htm. Accessed 12 Nov 2012.

  29. Giampietro M, Ulgiati S, Pimentel D. Feasibility of large-scale biofuel production. BioScience. 1997;47(9):587–600.

    Article  Google Scholar 

  30. Pimentel D, Patzek TW. Ethanol production using corn, switchgrass, and wood; biodiesel production using soybean and sunflower. Nat Resour Res. 2005;14(1):65–76.

    Google Scholar 

  31. Ulgiati S. A comprehensive energy and economic assessment of biofuels: when “green” is not enough. Crit Rev Plant Sci. 2001;20(1):71–106.

    Google Scholar 

  32. Worldwatch Institute. Biofuels for transport: global potential and implications for sustainable energy and agriculture. London: Routledge; 2007. p. 336.

    Google Scholar 

  33. Jung A, Dörrenberg P, Rauch A, Thöne M. Biofuels – at what cost? Government support for ethanol and biodiesel in the European Union–2010 update. Geneva: IISD/GSI; 2010.

    Google Scholar 

  34. reuters.com. U.S. to use more ethanol in 2011, but smaller market share [Internet]. Washington: July 2010. Available from: http://www.reuters.com/article/2010/07/12/us-usa-ethanol-target-idUSTRE66B4XR20100712. Accessed 12 Aug 2012.

  35. Schnepf R, Yacobucci BD. Renewable fuel standard (RFS): overview and issues. CRS Report for Congress 7–5700. Washington, DC: Congressional Research Service. Jan 23, 2012.

    Google Scholar 

  36. de Gorter H, Drabik D, Kliauga EM (2013) An economic model of Brazil's ethanol-sugar markets and impacts of fuel policies: implications for world commodity prices. World Bank working paper #6524, The World Bank Development Research Group Environment and Energy Team.

    Google Scholar 

  37. Dixson-Declève S. Fuel policies in the EU: lessons learned from the past and outlook for the future. In: Zachariadis TI, editor. Cars and carbon: automobiles and European climate policy in a global context. New York: Springer; 2012.

    Google Scholar 

  38. USDA. Canada biofuels annual 2012. USDA Foreign Agricultural Service; 2012 July 20. GAIN Report CA120127.

    Google Scholar 

  39. Darlington TL. Land use effects of U.S. corn-based ethanol. Air Improvement Resource, 2009. http://www.biofuels-platform.ch/en/media/index.php?id=238. Accessed 8 Jan 2013.

  40. de Gorter H, Drabik D, Just DR. The economics of a Blender’s tax credit versus a tax exemption: the case of U.S. “splash and dash” biodiesel exports to the European Union. Appl Econ Perspect Policy. 2011;33(4):510–27.

    Article  Google Scholar 

  41. Kliauga E, de Gorter H, Just DR. Measuring the subsidy component of biofuel tax credits and exemptions. In: Schmitz A, Wilson NL, Moss CB, editors. The economics of alternative energy sources and globalization: the road ahead. Sharjah: Bentham Science Publishers- E Book; 2011. p. 233.

    Google Scholar 

  42. Koplow D. State and federal subsidies to biofuels: magnitude and options for redirection. Int J Biotechnol. 2009;11(1,2):92–126.

    Article  Google Scholar 

  43. farm.ewg.org. Environmental working group [Internet]. 2012. [cited 2012 Aug 12]. Available from: http://farm.ewg.org/progdetail.php?fipsL'00000&progcodeL'corn. Accessed 12 Aug 2012.

  44. OECD (2012) Producer and consumer support estimates: producer support estimate and related indicators by Country. OECD Agriculture Statistics (database). 2010. Accessed 21 Sept 2012. doi:10.1787/data-00502-en.

  45. de Gorter H, Drabik D, Just DR. How biofuels policies affect the level of grains and oilseed prices: theory, models and evidence. Glob Food Secur. 2013;2(2):82–88.

    Google Scholar 

  46. Kristoufek L, Janda K, Zilberman D. Correlations between biofuels and related commodities before and during the food crisis: a taxonomy perspective. Energy Econ. 2012;34(5):1380–91.

    Article  Google Scholar 

  47. Kutas G, Lindberg C, Steenblik R. Biofuels – At what cost? Government support for ethanol and biodiesel in the European Union. Geneva: IISD/GSI; 2007.

    Google Scholar 

  48. USDA. EU-27 biofuels annual 2012. USDA Foreign Agricultural Service; 2012 June 25. GAIN Report NL2020.

    Google Scholar 

  49. Harmer T. Biofuels subsidies and the law of the world trade organization. Issue Paper No. 20; June 2009. ICTSD Global Platform on Climate Change, Trade Policies and Sustainable Energy, Geneva, Switzerland; 2009.

    Google Scholar 

  50. Ciaian P, Kancs D. Food, energy and environment: is bioenergy the missing link? Food Policy. 2011;36(5):571–80.

    Article  Google Scholar 

  51. de Gorter H, Just DR. ‘Water’ in the U.S. ethanol tax credit and mandate: implications for rectangular deadweight costs and the corn-oil price relationship. Rev Agric Econ. 2008;30(3):397–410.

    Article  Google Scholar 

  52. Rajcaniova M, Drabik D, Ciaian P. How policies affect international biofuel price linkages. Energy Policy 2013;59:857–865.

    Google Scholar 

  53. Carriquiry MA, Du X, Timilsina GR (2012) Second-generation biofuels; economics and policies. Policy research working paper no. 5406, World Bank; 2010. Available from: https://openknowledge.worldbank.org/bitstream/handle/10986/3891/WPS5406.pdf?sequence=1. Accessed 10 Nov 2012.

  54. Havlik P, Schneider UA, Schmid E, Bottcher H, Fritz S, Skalsky R, et al. Global land-use implications of first and second generation biofuel targets. Energy Policy. 2011;39(10):5690–702.

    Google Scholar 

  55. Mallory ML, Irwin SH, Hayes DJ. How market efficiency and the theory of storage link corn and ethanol markets. Energy Econ. 2012;34:2157–66.

    Article  Google Scholar 

  56. Msangi S, Sulser T, Rosegrant M, Valmonte-Santos R, Ringler C. Global scenarios for biofuels: impacts and implications. Farm Policy J. 2007;4(2):1–9.

    Google Scholar 

  57. Rajagopal D, Zilberman D. Review of environmental, economic and policy aspects of biofuels. The World Bank Development Research Group. Policy Research working paper 4341; Sept 2007.

    Google Scholar 

  58. Runge C, Senauer B. How biofuels could starve the poor. Foreign Affairs; Available from: http://www.foreignaffairs.org/20070501faessay86305/c-ford-runge-benjamin-senauer/how-biofuels-could-starve-the-poor.html?mode=print. May 2007. Accessed 13 Feb 2012.

  59. neo.ne.gov. Ethanol Nebraska rack prices [Internet]. 2012. Available from: http://www.neo.ne.gov/statshtml/66.html. Accessed 12 Aug 2012.

  60. data.worldbank.org. The world bank database [Internet]. 2012. Available from: http://data.worldbank.org/data-catalog/commodity-price-data. Accessed 1 Nov 2012.

  61. Rausser GC, de Gorter H. U.S. policy contributions to food grain commodity prices. Paper for UNU-Wider Workshop on The Political Economy of Food Price Policy. Ithaca, NY: Cornell University; July 9–12, 2012.

    Google Scholar 

  62. Yu TH, Bessler DA, Fuller SW. Cointegration and causality analysis of world vegetable oil and crude oil prices. Paper presented at the American Agricultural Economics Association annual meeting; 2006 July 23–26. Long Beach.

    Google Scholar 

  63. Arshad FM, Hameed AAA. The long run relationship between petroleum and cereals prices. Glob Econ Finance J. 2009;2(2):91–100.

    Google Scholar 

  64. Kancs D, Wohlgemuth N. Evaluation of renewable energy policies in an integrated economic-energy-environment model. Forest Policy Econ. 2008;10:128–39.

    Article  Google Scholar 

  65. europa.eu. Brusseles: European Commission. June 2008. Commission’s/EU’s response to the high oil and food prices [Internet]. European Commission MEMO/08/421. Available from: http://europa.eu/rapid/press-release_MEMO-08-421_en.htm. Accessed 12 Aug 2012.

  66. Zhang Q, Reed M. Examining the impact of the world crude oil price on China’s agricultural commodity prices: the case of corn, soybean, and pork. Paper Presented at the South Agricultural Economics Association annual meeting; 2008 Feb 2–5. Dallas; 2008.

    Google Scholar 

  67. Babcock BA, Fabiosa JF. The impact of ethanol and ethanol subsidies on corn prices: revisiting history. CARD Policy Brief 11-PB 5; Apr 2011.

    Google Scholar 

  68. Gurgel A, Reilly J, Paltsev S. Potential land use implications of a global biofuels industry. J Agric Food Ind Organ. 2007;5(2):1–34. Berkeley Electronic Press.

    Google Scholar 

  69. RFA. Ethanol industry outlook 2008 – Changing the climate. Renewable Fuel Association; Feb 2008; 20 p.

    Google Scholar 

  70. Roberts MJ, Schlenker W. Identifying supply and demand elasticities of agricultural commodities: implications for the US ethanol mandate. Working paper. 2012. Available from: http://are.berkeley.edu/~schlenker//ethanol.pdf. Accessed 1 Nov 2012.

  71. Rosegrant MW. Biofuels and grain prices: impacts and policy responses. Testimony for the U.S. Senate Committee on Homeland Security and Governmental Affair. Washington, DC: International Food Policy Research Institute. May 7, 2008.

    Google Scholar 

  72. Hertel T, Tyner W, Birur D. Biofuels for all? Understanding the global impacts of multinational mandates. GTAP working paper no. 51, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University; 2008.

    Google Scholar 

  73. OECD. Biofuel support policies: an economic assessment. OECD Publishing; Sept 2008: 146.

    Google Scholar 

  74. Tyner WE, Taheripour F, Zhuang Q, Birur D, Baldos U. Land use changes and consequent CO2 emissions due to US corn ethanol production: a comprehensive analysis. Final Report Department of Agricultural Economics, Purdue University; July 2010.

    Google Scholar 

  75. Diermeier M, Schmidt T. Oil price effects on land use competition – an empirical analysis. Ruhr working paper RWI 340; May 2012. doi:10.4419/86788392.

Download references

Acknowledgment

We acknowledge the financial support from the Slovak Research and Development Agency, contract No. APVV-0894-11 and VEGA1/0830/13. This work was co-funded by European Community under project no 26220220180: Building Research Centre “AgroBioTech”. The views expressed in the paper are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Miroslava Rajcaniova .

Editor information

Editors and Affiliations

Rights and permissions

Reprints and permissions

Copyright information

© 2015 Springer Science+Business Media New York

About this chapter

Cite this chapter

Rajcaniova, M., Ciaian, P., Drabik, D. (2015). International Policies on Bioenergy and Biofuels. In: Cruz, V.M.V., Dierig, D.A. (eds) Industrial Crops. Handbook of Plant Breeding, vol 9. Springer, New York, NY. https://doi.org/10.1007/978-1-4939-1447-0_18

Download citation

Publish with us

Policies and ethics