Global Trade and Environmental Impact Study of the EU Biofuels Mandate

Global demand for biofuels has risen sharply over the last decade, driven initially by oil price hikes and the need for greater energy security. Support measures were established in many countries in recognition of the potential of biofuel development in reducing dependence on fossil fuels, increasing farm revenues, and generating less environmental damage through lower greenhouse gas (GHG) emissions compared to non-renewable fuel sources. Over the last three years, however, skepticism about the positive impact of biofuels has escalated as the trade-offs between food, feed, and fuels and their impact on global agricultural markets became more evident, eventually leading to the debate over the extent of the role of biofuels in the 2007-08 food price crisis. Furthermore, several studies have raised serious concerns about the negative environmental impact of the unintended consequences of biofuel production, particularly the indirect land use change (ILUC) impact of releasing more carbon emissions as forests and pristine lands are converted to cropland due to biofuel expansion. This has led to the current debate over whether, and how, the ILUC effects should be accounted for, along with the direct land use change effects, in evaluating the potential impact of biofuel policies.

On Friday, April 2, three researchers from IFPRI’s Markets, Trade and Institutions Division (MTID)- David Laborde, Betina Dimaranan, and Perrihan Al-Riffai- will present their research aimed at analyzing the impact of possible changes in EU biofuels trade policies on global agricultural production and the environmental performance of the EU biofuel policy. The study pays particular attention to the ILUC effects, and the associated emissions, of the main feedstocks used for first-generation biofuels production. 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. The authors 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.

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.

There are important uncertainties with respect to a number of behavioral parameters in the model. Still, the main conclusions of the study remain robust with respect to the sensitivity analyzes performed. Yield response and land elasticities play a critical role in the assessment. The authors underscore the importance of having a high quality database that links the value and the quantity matrix to feed the model with technically relevant marginal rates of substitution and conclude by emphasizing critical areas for further research to improve the evidence base for policy makers.

Due to limited seating, we will be offering a live streaming video option for external participants. Please visit http://www.ustream.tv/channel/global-trade-and-environmental-impact-study-of-the-eu-biofuels-mandate to join the event remotely, which is scheduled to run from 12:30-1:30pm EDT.

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