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Impact of Biodiesel Blend Mandate (B10) on the Malaysian Palm Oil Industry

Author

Listed:
  • Applanaidu, Shri Dewi

    (Department of Economics and Agribusiness, School of Economics, Finance & Banking, College of Business, Economics Building, Universiti Utara Malaysia, 06010 Sintok, Kedah.)

  • Ali, Anizah

    (Department of Economics and Agribusiness, School of Economics, Finance & Banking, College of Business, Economics Building, Universiti Utara Malaysia, 06010 Sintok, Kedah.)

  • Haji Alias, Mohammad

    (Faculty of Economics and Muamalat Universiti Sains Islam Malaysia (USIM))

Abstract

Over the last ten years biofuels production has increased dramatically. One of the main factors is the rise in world oil prices, coupled with heightened interest in the abatement of greenhouse gas emissions and concerns about energy security. The increment in production has been driven by governmental interventions. In the US, the world’s largest fuel ethanol producer, strong financial incentives are guaranteed for biofuel manufacturers. While, in the European Union, the world’s largest biodiesel producer, biofuel consumption is mostly driven by blending mandates in both France and Germany. In the case of Malaysia, biodiesel started to be exported since 2006. The policy mandate of B5 blend of palm oil based biodiesel into diesel in all government vehicles was implemented in February 2009. It is expected that the blend of B5 will be increased to B10 in future. This paper seeks to examine the impact of B10 on the Malaysian palm oil market. A structural econometric model consisting of eight structural equations and four identities was proposed in this study. The model has been estimated by two stage least squares method using annual data for the period 1976- 2011. The specification of the structural model is based on a series of assumptions about general economic conditions, agricultural policies and technological change. The study indicates that counterfactual simulation of an increase from B5 to B10 predicts a positive increase (23.31 per cent) in palm oil domestic consumption, 109.3 per cent decrease in stock, 0.07 per cent increase in domestic price of palm oil and a marginal (0.05 percent) increase in production. An increase in domestic demand would make Malaysia more competitive regionally and globally with benefits accruing to all Malaysians.

Suggested Citation

  • Applanaidu, Shri Dewi & Ali, Anizah & Haji Alias, Mohammad, 2014. "Impact of Biodiesel Blend Mandate (B10) on the Malaysian Palm Oil Industry," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 48(2), pages 29-40.
    • Handle: RePEc:ukm:jlekon:v:48:y:2014:i:2:p:29-40
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    References listed on IDEAS

    as
    1. John D. Anderson & Keith H. Coble, 2010. "Impact of renewable fuels standard ethanol mandates on the corn market," Agribusiness, John Wiley & Sons, Ltd., vol. 26(1), pages 49-63.
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    More about this item

    Keywords

    Biodiesel blend mandate of B5; Malaysian palm oil market; biodiesel blend mandate of B10; simultaneous equations; two stage least squares;
    All these keywords.

    JEL classification:

    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
    • B10 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - General

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