European Union and    United States Biofuel         Mandates  Impacts on World Markets   IADB seminar – December 2nd 2010b...
Overview•   Introduction and Background•   Modeling Choices•   Database•   The Baseline•   Results•   Concluding RemarksIN...
INTRODUCTIONINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE   Page 3
Goals of this study• Assessing Economic and Environmental Effects                                                         ...
Previous conclusions:                           The Biofuels Mix matters                                               Emi...
MODELINGINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE   Page 6
Main Features• Global CGE MIRAGE – assume perfect competition• Improvement in demand system (food and energy) -  done in p...
Disaggregation (Sectors)               Sector       Description     Sector      Description            Sector         Desc...
Disaggregation (Regions)    Region            Description    Brazil            Brazil    CAMCarib          Central America...
Production Tree for an Ag. Sector ChangesINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE     Page 10
Yield Changes in the Model• Exogenous technology: TFP in agriculture• Endogenous effects:      • Factor accumulation:     ...
Fertilizers• Price elasticities calibrated from the IMPACT  model• Logistic approach for yield effectsINTERNATIONAL FOOD P...
Livestock Sector and IntensificationTraditional approach                           Intensification approach• Feedstock  I...
Biodiesel Production                                                  Oil                      Crops                     s...
Ethanol Production                                               Biofuels                            Crops                ...
Land Markets – at the AEZ Level      Wheat          Corn        Oilseeds                      CET     Sugar       Substitu...
DATAINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE   Page 17
Major Efforts on Data: from Values to Quantities• Improvement from GTAP7      • Split for fertilizers and fossil fuels    ...
BASELINEINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE   Page 19
Defining a Relevant Baseline• Macroeconomic targets      • Growth      • Oil prices      • EU fuel consumption for Road tr...
Effects EU AD/CD on US Biodiesel                                   2.00                                   1.80  Million To...
Annual Growth in Yields (baseline) 4 3 2 1 0-1                    Land allocation      Fertilizer        Factor intensity ...
RESULTSINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE   Page 23
Defining a Central Scenario• Scenario 1 - Mandate Policy: Implementation of the EU [6% of an  overall fuel consumption of ...
Domestic Biofuels Production (2020                                 compared to baseline)                         200%     ...
Price changes (2020, compared to baseline) 8% 7% 6% 5% 4% 3% 2% 1% 0%      Mandate       Mandate and trade liberalization ...
Regional Food Prices (2020, compared to baseline) 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% -0.2%               Mandate     Mandate an...
Agricultural Value Added (compared to                    baseline, 2020)INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE   Pag...
Oil Prices                                                                           Mandate                              ...
Real Income and Terms of TradeReal Income (%)                                    Terms of Trade (%)      US               ...
Cropland extension (Mha)INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE     Page 31
Source of crop land extension             Pasture       Managed forest       Savannah/cerrado/grassland       Primary fore...
Carbon Balance Sheet                                               Mandate and      Mandate without                       ...
Conclusions• EU and US biofuels policies slightly costly in  terms of Real Income for the World      • For both regions, t...
To Sum Up:INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE       Page 35
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Eu and us biofuel mandates: Impacts on World Markets

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Presentation of the study conducted by IFPRI for the Inter American Development Bank on the economic and environmental impacts of the US and EU biofuel policies with a focus on Brazil.
Technical document available:
http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=35529623

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Eu and us biofuel mandates: Impacts on World Markets

  1. 1. European Union and United States Biofuel Mandates Impacts on World Markets IADB seminar – December 2nd 2010by Perrihan Al-Riffai, Betina Dimaranan,David Laborde Debucquet with the collaboration and support from IADB, ICONE and FIESP
  2. 2. Overview• Introduction and Background• Modeling Choices• Database• The Baseline• Results• Concluding RemarksINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 2
  3. 3. INTRODUCTIONINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 3
  4. 4. Goals of this study• Assessing Economic and Environmental Effects • Increase in yield Increased • Increase in area •Extension of crop L production land •Reduction of other crops A New N Reduced • Hunger? Demand supply for final D consumers • Substitution effects for crops Reduced supply for • Feed • Other sectors U intermediate (agrifood, cosmetics) consumers • Substitution effects S• Terms of trade effects (energy, biofuels) EINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 4
  5. 5. Previous conclusions: The Biofuels Mix matters Emissions uncertainties –MARGINAL ILUC crop EU mandate (Monte Carlospecific simulations). Mandate 5.6% Land Use Emissions (gCO2eq/MJ) / 20 years Marginal Coef. gCO2/Mj 100%Ethanol -49.69 90%Ethanol Sugar Beet -35.86 80%Ethanol SugarCane -53.95 70%Ethanol Maize 3.64 60%Ethanol Wheat -7.00 50%Biodiesel 5.95 40%Palm Oil (no peat land) -21.98 30% EthanolRapeseed Oil 8.76 20% Ethanol Free TradeSoybean Oil 24.07 Biodiesel 10%Sunflower Oil 8.73 0% 0 20 40 60 80 100Al Riffai, Dimaranan, Laborde, 2010 Laborde & Valin, 2010INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 5
  6. 6. MODELINGINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 6
  7. 7. Main Features• Global CGE MIRAGE – assume perfect competition• Improvement in demand system (food and energy) - done in previous works• Improved sector disaggregation• New modeling of Ethanol sectors• Land market and land extensions at the AEZ level• Co-products (ethanols and vegetal oils)• New modeling of fertilizers• New modeling of livestocks (extensification/intensification)INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 7
  8. 8. Disaggregation (Sectors) Sector Description Sector Description Sector Description Rice Rice SoybnOil Soy Oil EthanolW Ethanol - Wheat Wheat Wheat SunOil Sunflower Oil Biodiesel Biodiesel Maize Maize OthFood Other Food sectors Manuf Other Manufacturing activities PalmFruit Palm Fruit MeatDairy Meat and Dairy WoodPaper Wood and Paper products Rapeseed Rapeseed Sugar Sugar Fuel Fuel Soybeans Soybeans Forestry Forestry PetrNoFuel Petroleum products, except fuel Sunflower Sunflower Fishing Fishing Fertiliz Fertilizers OthOilSds Other oilseeds Coal Coal ElecGas Electricity and Gas VegFruits Vegetable & Oil Oil Construction Construction Fruits OthCrop Other crops Gas Gas PrivServ Private services Sugar_cb Sugar beet or OthMin Other minerals RoadTrans Road Transportation cane Cattle Cattle Ethanol Ethanol - Main AirSeaTran Air & Sea sector transportation OthAnim Other animals EthanolC Ethanol - Sugar PubServ Public services (inc. hogs and Cane poultry) PalmOil Palm Oil EthanolB Ethanol - Sugar Beet RpSdOil Rapeseed Oil EthanolM Ethanol - MaizeINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 8
  9. 9. Disaggregation (Regions) Region Description Brazil Brazil CAMCarib Central America and Caribbean countries China China CIS CIS countries (inc. Ukraine) EU27 European Union (27 members) IndoMalay Indonesia and Malaysia LAC Other Latin America countries (inc. Argentina) RoOECD Rest of OECD (inc. Canada & Australia) RoW Rest of the World SSA Sub Saharan Africa USA United States of America But: Land markets at the AEZ levelINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 9
  10. 10. Production Tree for an Ag. Sector ChangesINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 10
  11. 11. Yield Changes in the Model• Exogenous technology: TFP in agriculture• Endogenous effects: • Factor accumulation: • More capital and labor by unit of land • FertilizersINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 11
  12. 12. Fertilizers• Price elasticities calibrated from the IMPACT model• Logistic approach for yield effectsINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 12
  13. 13. Livestock Sector and IntensificationTraditional approach Intensification approach• Feedstock  Intermediate • Like fertilizers consumption • Ratio price of land/price of• Intermediate consumption & feedstocks  Producer choice Value Added (including Land) • Increase in price of feedstock  complementary Substitution effect =• Increase in feedstock prices  Intensification + Overall price Increase in production cost  effect = reduction in production Decrease in demand   Overall, potential increase in Decrease in production  Land use Decrease in Land UseINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 13
  14. 14. Biodiesel Production Oil Crops sector Biofuel (+meals) Sunflower Sunflower seed oil Soybean Soybean oil Biodiesel Rapeseed Rapeseed oil Palm fruit Palm oil & KernelINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 14
  15. 15. Ethanol Production Biofuels Crops Blending (+ DDG) Ethanol Wheat W Maize Ethanol M Sugar Ethanol B Ethanol Beet Sugar Ethanol C Cane Imported Imported Ethanol* Ethanol*INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 15
  16. 16. Land Markets – at the AEZ Level Wheat Corn Oilseeds CET Sugar Substitutable Vegetables Other Livestock1 LivestockN crops crops and fruits crops CET CET Cropland Pasture CET Agricultural Managed land forest CET Land extension Unmanaged land Managed land Natural forest - GrasslandsINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 16
  17. 17. DATAINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 17
  18. 18. Major Efforts on Data: from Values to Quantities• Improvement from GTAP7 • Split for fertilizers and fossil fuels • Disaggregation with specific procedure for Maize, Soybeans, Sunflower seed, Palm fruit, Rapeseed + relevant Oils + Co-products • Production targeting (FAO) for all relevant crops • Creation of a “harmonized” price database for calibration • Case of co-products • Creation of Ethanol and Biodiesel (2008 trade and production structure). • Correction of some I-O data (e.g. China)• Land use (AEZ GTAP database 2001  2004, + consistency with FAO and M3) • Correction for Sugar cane AEZ in BrazilINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 18
  19. 19. BASELINEINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 19
  20. 20. Defining a Relevant Baseline• Macroeconomic targets • Growth • Oil prices • EU fuel consumption for Road transportation• Technology and yields• Policies • Trade policies • Ag policies • Biofuel policies: • EU and US: 2008 blending rate • Brazil (Biodiesel mandate, flex for ethanol) • Mandate in China, ASEAN and Rest of OECD• One issue: exchange rate USDINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 20
  21. 21. Effects EU AD/CD on US Biodiesel 2.00 1.80 Million Tons of Oil Equivalent 1.60 United States 1.40 Rest of OECD 1.20 (Mtoe) Other Latin American Countries 1.00 (inc. Argentina) 0.80 Indonesia and Malaysia 0.60 China 0.40 Brazil 0.20 0.00 2008 2020INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 21
  22. 22. Annual Growth in Yields (baseline) 4 3 2 1 0-1 Land allocation Fertilizer Factor intensity Technical progress-2 EU EU EU EU EU EU US US US US US US Brazil Brazil Brazil Brazil Brazil Brazil Maize Rapeseed Soybeans Sugar cane Sunflower Wheat or beetINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 22
  23. 23. RESULTSINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 23
  24. 24. Defining a Central Scenario• Scenario 1 - Mandate Policy: Implementation of the EU [6% of an overall fuel consumption of 316 Mtoe, of which 40% will be ethanol] and US [RFS2] biofuel mandates of targeted consumption of ethanol and biodiesel in 2020, under a Business as Usual trade policy assumption;• Scenario 2 - Mandate and Trade Liberalization: Implementation of the EU and US biofuel mandates of targeted consumption of ethanol and biodiesel in 2020, with the assumption of full, unilateral, trade liberalization in biofuels in both countries;• Scenario 3 - Mandate without Sugarcane Ethanol: Implementation of the EU and US biofuel mandates of targeted consumption of ethanol and of biodiesel in 2020, without sugarcane ethanol imports, under a Business as Usual trade policy assumption.INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 24
  25. 25. Domestic Biofuels Production (2020 compared to baseline) 200% + 578% 150%% Change over baseline 100% 50% 0% -50% -100% Biodiesel Ethanol Mandate Mandate and Trade Liberalization Mandate without Sugarcane EthanolINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 25
  26. 26. Price changes (2020, compared to baseline) 8% 7% 6% 5% 4% 3% 2% 1% 0% Mandate Mandate and trade liberalization Mandate without sugarcane ethanolINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 26
  27. 27. Regional Food Prices (2020, compared to baseline) 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% -0.2% Mandate Mandate and trade liberalization Mandate without sugarcane ethanol -0.4% All Animal Primary All Animal Primary All Animal Primary crops food crops food crops food EU27 SSA USINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 27
  28. 28. Agricultural Value Added (compared to baseline, 2020)INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 28
  29. 29. Oil Prices Mandate 10% Mandate and Trade 8% Liberalization 6% Mandate without Sugarcane Ethanol % Change over Baseline 4% 2% 0% -2% -4% Oil Fuel Price -6% -8% World Brazil European Union United StatesINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 29
  30. 30. Real Income and Terms of TradeReal Income (%) Terms of Trade (%) US US SSA SSA Mandate Mandate LAC LAC Mandate and tradeIndoMalay liberalization IndoMalay Mandate and Mandate without trade EU27 sugarcane ethanol EU27 liberalization CIS CIS Mandate without sugarcane China China ethanolCAMCarib CAMCarib Brazil Brazil -1.0% -0.5% 0.0% 0.5% -2.0%-1.0% 0.0% 1.0% 2.0% 3.0% INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 30
  31. 31. Cropland extension (Mha)INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 31
  32. 32. Source of crop land extension Pasture Managed forest Savannah/cerrado/grassland Primary forest100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Mandate Mandate and Mandate Mandate Mandate and Mandate trade without trade without liberalization sugarcane liberalization sugarcane ethanol ethanol Brazil WorldINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 32
  33. 33. Carbon Balance Sheet Mandate and Mandate without trade sugarcane Mandate liberalization ethanol Total carbon release from land use 845.2 801.9 818.4 (MtCO2eq) Marginal carbon reimbursement rate -74.3 -81.4 -40.6 (MtCO2 per year) EU+US Consumption of biofuel in 2020 2502 2524 2069 (million GJ) Annual carbon release from land use 38.8 36.2 57.81 (gCO2eq/MJ) Annual direct savings (gCO2/MJ) -59.6 -64.2 -49.9 Total emission balance over a 20-year period -20.8 -28 7.92 (gCO2/MJ)INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 33
  34. 34. Conclusions• EU and US biofuels policies slightly costly in terms of Real Income for the World • For both regions, the oil price effects is critical to assess the economic effects • Brazil will be the main winner [under our assumption, especially about ethanol on the EU market] and the region the most affected in terms of land use change• Sugar Cane Ethanol plays a key role to: • Limit the effects on food prices • Improve gains for the consumers at the pump • Reach a positive environmental outcomeINTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 34
  35. 35. To Sum Up:INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE Page 35
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