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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

Related research

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

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References

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  1. 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.
  2. Smulders, Sjak A. & Tsur, Y. & Zemel, A., 2010. "Announcing climate policy: Can a green paradox arise without scarcity?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4500307, Tilburg University.
  3. Hongli Feng & Bruce A. Babcock, 2008. "Impacts of Ethanol on Planted Acreage in Market Equilibrium," Center for Agricultural and Rural Development (CARD) Publications 08-wp472, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  4. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2006. "A Dynamic Model of Food and Clean Energy," IDEI Working Papers 403, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Chakravorty, Ujjayant & Hubert, Marie-Helene & Nostbakken, Linda, 2009. "Fuel versus Food," Working Papers 2009-20, University of Alberta, Department of Economics.
  6. 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.
  7. Chakravorty, Ujjayant & Hubert, Marie-Helene & Nostbakken, Linda, 2012. "The Long Run Impact of Biofuels on Food Prices," Working Papers 2012-11, University of Alberta, Department of Economics.
  8. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
  9. 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.
  10. Gaudet, Gerard & Moreaux, Michel & Withagen, Cees, 2006. "The Alberta dilemma: Optimal sharing of a water resource by an agricultural and an oil sector," Journal of Environmental Economics and Management, Elsevier, vol. 52(2), pages 548-566, September.
  11. Rajagopal, Deepak & Zilberman, David, 2007. "Review of environmental, economic and policy aspects of biofuels," Policy Research Working Paper Series 4341, The World Bank.
  12. Ciaian, Pavel & Kancs, d'Artis, 2010. "Interdependencies in the Energy-Bioenergy-Food Price Systems: A Cointegration Analysis," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61009, Agricultural and Applied Economics Association.
  13. John Hassler & Hans-Werner Sinn, 2012. "The Fossil Episode," CESifo Working Paper Series 4016, CESifo Group Munich.
  14. 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.
  15. GRAFTON, R. Quentin & KOMPAS, Tom & LONG, Ngo Van, 2011. "Substitution between Biofuels and Fossil Fuels: Is There a Green Paradox?," Cahiers de recherche 10-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  16. 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.
  17. 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.
  18. 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.
  19. Nazlioglu, Saban, 2011. "World oil and agricultural commodity prices: Evidence from nonlinear causality," Energy Policy, Elsevier, vol. 39(5), pages 2935-2943, May.
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Cited by:
  1. GRAFTON, R. Quentin & KOMPAS, Tom & LONG, Ngo Van, 2011. "Substitution between Biofuels and Fossil Fuels: Is There a Green Paradox?," Cahiers de recherche 10-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. 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.
  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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