World Market Impacts of High Biofuel Use in the European Union

Miguel Carriquiry, Fengxia Dong, Xiaodong Du, Amani Elobeid, Jacinto F. Fabiosa, Ed Chavez, Suwen Pan
July 2010  [10-WP 508]

This study examines the world market impact of an expansion in the biofuel sector in the European Union with particular focus on indirect land-use impacts. In the first scenario, an increase of 1 million tonnes oil equivalent (Mtoe) of wheat ethanol use in the European Union expands world land area used in agricultural commodity production by 366,000 hectares, representing an increase of 0.039% in total area. In the second scenario, an increase of 1 Mtoe of rapeseed oil biodiesel use in the European Union expands world land area by 352,000 hectares, representing an increase of 0.038% in total area.

With additional land use somewhat close between the two scenarios, the main difference is the spatial distribution of the sources of additional supply. Because the wheat sector, especially in the European Union, is large (26.4 million hectares), when wheat use for ethanol production expands, most of the adjustment is met within the European Union, with only a 9% reduction in net exports required. In contrast, since the rapeseed sector is smaller (only 7.8 mha in the EU), 57% of additional rapeseed oil used for expanded biodiesel production is supplied from higher imports, allowing substantial adjustment by countries outside of the European Union.

Keywords: biofuels, land use, partial equilibrium model, rapeseed oil biodiesel scenario, wheat ethanol scenario.

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