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The economics of oil, biofuel and food commodities

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  • Bahel, Eric
  • Marrouch, Walid
  • Gaudet, Gérard

Abstract

We study the effects on the food price of introducing biofuels as a substitute for fossil fuel in the energy market. Energy is supplied by a price-leading oil cartel and a competitive fringe of farmers producing biofuel. Biofuel production shares a finite land resource with food production. A positive relationship results between energy and food prices. We establish that the equilibrium price of food will be growing as long as the oil stock is being depleted, and beyond if demand is growing. An analysis of the effects of the productivity of land use in either the food or the biofuel sectors is carried out. It is shown that, with a highly inelastic demand for food, an increase in the productivity of land in agriculture will decrease the price of food in the short-run, only to increase it in the long-run as the stock of fossil fuel is depleted.

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Bibliographic Info

Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 35 (2013)
Issue (Month): 4 ()
Pages: 599-617

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Handle: RePEc:eee:resene:v:35:y:2013:i:4:p:599-617

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Web page: http://www.elsevier.com/locate/inca/505569

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Keywords: Biofuel; Oil depletion; Demand growth; Energy price; Food price;

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References

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  1. Hongli Feng & Bruce A. Babcock, 2010. "Impacts of Ethanol on Planted Acreage in Market Equilibrium," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(3), pages 789-802.
  2. CHAKRAVORTY Ujjayant & MAGNE Bertrand & MOREAUX Michel, 2006. "A dynamic model of food and clean energy," LERNA Working Papers 06.10.203, LERNA, University of Toulouse.
  3. Smulders, Sjak & Tsur, Yacov & Zemel, Amos, 2012. "Announcing climate policy: Can a green paradox arise without scarcity?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 364-376.
  4. Frederick Van der Ploeg & Cees A. Withagen, 2010. "Is There Really a Green Paradox?," CESifo Working Paper Series 2963, CESifo Group Munich.
  5. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-93, October.
  6. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer, vol. 15(4), pages 360-394, August.
  7. Pavel Ciaian & d'Artis Kancs, 2009. "Interdependencies in the Energy-Bioenergy-Food Price Systems: A Cointegration Analysis," EERI Research Paper Series EERI_RP_2009_06, Economics and Econometrics Research Institute (EERI), Brussels.
  8. Quentin Grafton & Tom Kompas & Ngo Van Long, 2012. "Substitution between bio-fuels and fossil fuels: is there a Green Paradox?," CIRANO Working Papers 2012s-10, CIRANO.
  9. Nazlioglu, Saban, 2011. "World oil and agricultural commodity prices: Evidence from nonlinear causality," Energy Policy, Elsevier, vol. 39(5), pages 2935-2943, May.
  10. GAUDET Gérard & MOREAUX Michel & WITHAGEN Cees, 2006. "The Alberta dilemma: Optimal sharing of a water resource by an agricultural and an oil sector," LERNA Working Papers 06.06.199, LERNA, University of Toulouse.
  11. Hassler, John & Sinn, Hans-Werner, 2012. "The Fossile Episode," CEPR Discussion Papers 9256, C.E.P.R. Discussion Papers.
  12. Saraly Andrade de Sá & Charles Palmer & Stefanie Engel, 2012. "Ethanol Production, Food and Forests," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 51(1), pages 1-21, January.
  13. Sinn, Hans-Werner, 2012. "The Green Paradox: A Supply-Side Approach to Global Warming," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016680, December.
  14. Ujjayant Chakravorty & Marie-H�l�ne Hubert & Linda N�stbakken, 2009. "Fuel Versus Food," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 645-663, 09.
    • Chakravorty, Ujjayant & Hubert, Marie-Helene & Nostbakken, Linda, 2009. "Fuel versus Food," Working Papers 2009-20, University of Alberta, Department of Economics.
  15. Rajagopal, Deepak & Zilberman, David, 2007. "Review of environmental, economic and policy aspects of biofuels," Policy Research Working Paper Series 4341, The World Bank.
  16. Frederick van der Ploeg & Cees Withagen, 2010. "Is there really a Green Paradox?," Tinbergen Institute Discussion Papers 10-020/3, Tinbergen Institute, revised 27 Aug 2012.
  17. Hubert, Marie-Helene & Chakravorty, Ujjayant & van Kooten, G. Cornelis, 2008. "Biofuels, Agriculture And Climate Change," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44259, European Association of Agricultural Economists.
  18. Ujjayant Chakravorty & Marie-Hélène Hubert & Michel Moreaux & Linda Nøstbakken, 2012. "The Long Run Impact of Biofuels on Food Prices," CESifo Working Paper Series 3876, CESifo Group Munich.
  19. Hochman Gal & Sexton Steven E & Zilberman David D, 2008. "The Economics of Biofuel Policy and Biotechnology," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 6(2), pages 1-24, December.
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Citations

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Cited by:
  1. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Do Biofuel Subsidies Reduce Greenhouse Gas Emissions?," International and Development Economics Working Papers idec10-01, International and Development Economics.
  2. Quentin Grafton, R. & Kompas, Tom & Van Long, Ngo, 2012. "Substitution between biofuels and fossil fuels: Is there a green paradox?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 328-341.
  3. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
  4. Ngo Van LONG, 2014. "The Green Paradox under Imperfect Substitutability between Clean and Dirty Fuels," Cahiers de recherche 02-2014, Centre interuniversitaire de recherche en économie quantitative, CIREQ.

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