Impact of EU Biofuel Policies

Martin Banse

(LEI, Netherlands)

Expert Meeting on Bioenergy Policy, Markets and Trade and Food Security

FAO, Rome February 18-20, 2008

Outline of Presentation� Introduction� Methodology� Modeling results of enhanced biofuel production

� Impact at Global level • Primary agricultural production• Trade • Land use

� Summary and conclusion

Methodology (I)� Instruments applied analyzing policy options in the

area of biofuels� General equilibrium model: LEITAP

• Extended version of the GTAP model

• Land allocation function; land supply curve,

• Bio-energy crop use in petroleum sector

� Spatial land use model: CLUEs• disaggregate LEITAP/IMAGE to temporal resolution of two years

and a spatial resolution of 1 km• uses land claims of the different sectors at national level• Allocation of these claims over the land area according to

location suitability, spatial policies and transition rules

Methodology (II)

Methodology (III): Impact of an Increase in Land Demand

Q2’ ωQ2Q1 Q1’

Land Supply

P1’

P2’

D2’

D2

D1

Average land rental price

Agricultural Area

D1’

Limiteff

P1

P2

Firm’s output

σVA

σ = 0

Value added Intermediate inputs

CapitalLandNatural resources

Labor

Skilled Unskilled

σLAB

σD

Domestic Imported

Region 1 Region r

σM

Standard GTAP: Production Structure

Firm’s output

Value added & Energy Non-energyintermediate inputs

σ = 0

σVAE

Capital-Energycomposite

LandNatural resources

Skilled Unskilled

Labor

σLAB

σD

Domestic Imported

Region 1 Region r

σM

GTAP-E Production Structure (Burniaux, Truong, 2002)

Electric

σENER

Non-electric

Coal

σNELY

Gas

σNCOL

Petroleum productsOil

Non-coal

Capital-Energy

Capital Energy

σKE

GTAP-E: Capital-Energy Composite

Gas

σNCOL

Fuel

Non-coal

Modeling Biofuels in LEITAP

σEthanol

Sugar-beetand -cane

Wheat Grain

EthanolVeget. oil

σFuel

Petroleum products

Oil

Implementing the Biofuel Policies

� Mandatory blending as an example of biofuel policy� Price incentive (subsidy or tax exempt) to use bio- fuel

crops� ‘Neutral subsidy’: Additional (endogenous) sales tax on

petrol finances the prices incentive to use bio-fuel crops

Scenarios calculated

� Reference scenario� A1 SRES ‘Global Economy’� Reduction of price and income support to agriculture

� Policy scenarios� Implementation of EU biofuel directive (BFD)

• Targets– 5.75% share of biofuel consumption in transportation by 2010– 10% share of biofuel consumption in transportation by 2020

� Implementation of biofuel initiatives outside Europe

US

Europe China

Japan

India

15 % – Ethanol

<= 5% Biodiesel

2017

5 % Biodiesel

25% Bioethanol

2020

Brazil

10 %

2020

15 %

2020

10 %

2010

10 %

2020

10 %

2030

10 %

2012

5.0 %

Date?

South

Africa

Targets for Bio-fuels Worldwide

Malaysia / Indonesia / Thailand

S.Korea

Sources: IEA Task 39 report May 2007, Governments of countries, Frost & Sullivan Consulting

Impact of Biofuel Directives on World Prices, in %, 2020 relative to 2001

-15%

-10%

-5%

0%

5%

10%

15%

20%

Cereals Oilseeds Sugar Crude oil

Reference Biofuel policies, EU

Biofuel policies, global

Development of Share of Biofuels, in %, 2020

Regional Communities

0%

5%

10%

15%

20%

25%

30%

35%

Germany France Nafta South

Africa

Japan Brazil Rest of

South

America

2001 Reference Biofuel, EU Biofuel, global

Impact of Biofuel Directives on Biofuel Crop Production, in %, 2020 relative to 2001

-20

0

20

40

60

80

100

120

140

Africa Asia C&SAmer EU27 Nafta World

Reference Biofuel, EU Biofuel, global

Impact of Biofuel Directives on Agricultural Land Use, in %, 2020 relative to 2001

-10%

0%

10%

20%

30%

40%

50%

Africa Asia C&SAmer EU27 HighInc World

Reference Biofuels, EU Biofuels, global

Net-Exports in Biofuel Crops, in Bill. USD

-40

-30

-20

-10

0

10

20

30

40

50

Africa Asia C&SAmer EU27 HighInc

Initial, 2001 Reference, 2020

Biofuels, EU, 2020 Biofuels, global, 2020

Initial Share of Biofuel Use and Subsidies on Inputs in Petroleum Industries, 2020

Regional Communities

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Sweden Germany France UK Czech

Republic

BFD BFD, high oil price

Initial Biofuel Shares:Sweden 2.9%Germany 1.9%France 0.9%UK 0.3%Czech Rep. 1.2%

Subsidy on Biofuel Crops in Petro.

Biofuel cultivation at Regional Level in the EU, in 2020 as percentage of total land area

Hotspots of biofuel crop production:• in areas with high initial biofuel crop production (Germany, France) • in area with land reserves (new EU member states)

Summary and Conclusions

� EU Biofuel Directive/ global biofuel initiatives� High subsidies indicate big challenges to fulfill the biofuel

targets� Impact on global agri-food markets� Strong effect on agricultural land use

� Limitations of empirical analysis� Focus on 1st generation� High uncertainties with regard to technological change and

development of crude oil price� Results may under-estimate real developments