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Dynamic impacts of high oil prices on the bioethanol and feedstock markets

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  • Cha, Kyung Soo
  • Bae, Jeong Hwan
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    Abstract

    This study investigates the impacts of high international oil prices on the bioethanol and corn markets in the US. Between 2007 and 2008, the prices of major grain crops had increased sharply, reflecting the rise in international oil prices. These dual price shocks had caused substantial harm to the global economy. Employing a structural vector auto-regression model (SVAR), we analyze how increases in international oil prices could impact the prices of and demand for corn, which is used as a major bioethanol feedstock in the US. The results indicate that an increase in the oil price would increase bioethanol demand for corn and corn prices in the short run and that corn prices would stabilize in the long run as corn exports and feedstock demand for corn decline. Consequently, policies supporting biofuels should encourage the use of bioethanol co-products for feed and the development of marginal land to mitigate increases in the feedstock price.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 39 (2011)
    Issue (Month): 2 (February)
    Pages: 753-760

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    Handle: RePEc:eee:enepol:v:39:y:2011:i:2:p:753-760

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    Web page: http://www.elsevier.com/locate/enpol

    Related research

    Keywords: Bioethanol Feedstock SVAR;

    References

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    Cited by:
    1. Serra, Teresa & Zilberman, David, 2013. "Biofuel-related price transmission literature: A review," Energy Economics, Elsevier, Elsevier, vol. 37(C), pages 141-151.
    2. Gbadebo Oladosu & Siwa Msangi, 2013. "Biofuel-Food Market Interactions: A Review of Modeling Approaches and Findings," Agriculture, MDPI, Open Access Journal, vol. 3(1), pages 53-71, February.
    3. Kong, Minji & Han, Doo Bong & Nayga, Rodolfo M., Jr., 2012. "Interrelationship and Volatility Transmission between Grain and Oil Prices," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington, Agricultural and Applied Economics Association 124377, Agricultural and Applied Economics Association.
    4. Natanelov, Valeri & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2013. "Crude oil–corn–ethanol – nexus: A contextual approach," Energy Policy, Elsevier, Elsevier, vol. 63(C), pages 504-513.
    5. Maslyuk, Svetlana & Dharmaratna, Dinusha, 2013. "Renewable Electricity Generation, CO2 Emissions and Economic Growth: Evidence from Middle-Income Countries in Asia /Generación de electricidad renovable, las emisiones de CO2 y crecimiento económico: ," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 31, pages 217-244, Enero.
    6. Catherine Hausman & Maximilian Auffhammer & Peter Berck, 2012. "Farm Acreage Shocks and Crop Prices: An SVAR Approach to Understanding the Impacts of Biofuels," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 53(1), pages 117-136, September.
    7. Ladislav Kristoufek & Karel Janda & David Zilberman, 2013. "Non-linear Price Transmission between Biofuels, Fuels and Food Commodities," CERGE-EI Working Papers wp481, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    8. Philip Abbott, 2013. "Biofuels, Binding Constraints and Agricultural Commodity Price Volatility," NBER Working Papers 18873, National Bureau of Economic Research, Inc.
    9. Ladislav Kristoufek & Karel Janda & David Zilberman, 2012. "Mutual Responsiveness of Biofuels, Fuels and Food Prices," CAMA Working Papers 2012-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Serra, Teresa & Gil, Jose Maria, 2012. "Biodiesel as a motor fuel price stabilization mechanism," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil, International Association of Agricultural Economists 126056, International Association of Agricultural Economists.
    11. McPhail, Lihong Lu, 2011. "Assessing the impact of US ethanol on fossil fuel markets: A structural VAR approach," Energy Economics, Elsevier, Elsevier, vol. 33(6), pages 1177-1185.
    12. Philip Abbott, 2013. "Biofuels, Binding Constraints and Agricultural Commodity Price Volatility," NBER Chapters, in: The Economics of Food Price Volatility National Bureau of Economic Research, Inc.

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