The effect of biofuel on the international oil market
AbstractThis paper derives a method to quantify the short- to medium-run impact of biofuel on fuel markets, assuming that these markets are dominated by cartel of oil-rich countries, and that prices in these countries are set to maximize the sum of domestic consumer and producer surplus, leading to a wedge between domestic and international fuel prices. We model this behavior by applying the optimal export tax model (henceforth, the cartel-of-nations model) to the fuel markets. Using data from 2007 to calibrate the model, we show that the introduction of biofuels lowered global gasoline and diesel consumption and international fuel prices by about 1% and 2%, respectively. We identify large differences between the effects of introducing biofuels using the cartel-of-nations model, in contrast to the competitive or the standard cartel model (henceforth, the cartel-of- firms model). We illustrate that assessing the effect of biofuels assuming competitive fuel markets overestimates the reduction in fuel price, and underestimates the reduction of gasoline and diesel consumption, and therefore impact of biofuels on greenhouse gas emissions, when compared to the effect under a cartel-of-nations model. Similar conclusions are derived with respect to cartel- of-firms model. Finally, we illustrate that a 20% increase in fuel demand more than doubles the impact of biofuels on fuel markets, compared to 2007.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado with number 61722.
Date of creation: Jul 2010
Date of revision:
Contact details of provider:
Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
Energy; OPEC; biofuel; fuel; carbon savings; optimal export tax model; cheap oil; Resource /Energy Economics and Policy; F1; Q4;
Other versions of this item:
- Hochman, Gal & Rajagopal, Deepak & Zilberman, David D., 2010. "The effect of biofuel on the international oil market," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0k93s7zg, Department of Agricultural & Resource Economics, UC Berkeley.
- Hochman, Gal & Rajagopal, Deepak & Zilberman, David, 2010. "The effect of biofuel on the international oil market," CUDARE Working Paper Series 1099, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- F1 - International Economics - - Trade
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Moran, Theodore H., 1981. "Modeling OPEC behavior: economic and political alternatives," International Organization, Cambridge University Press, vol. 35(02), pages 241-272, March.
- Dees, Stephane & Karadeloglou, Pavlos & Kaufmann, Robert K. & Sanchez, Marcelo, 2007. "Modelling the world oil market: Assessment of a quarterly econometric model," Energy Policy, Elsevier, vol. 35(1), pages 178-191, January.
- Thompson, Wyatt & Whistance, Jarrett & Meyer, Seth, 2011. "Effects of US biofuel policies on US and world petroleum product markets with consequences for greenhouse gas emissions," Energy Policy, Elsevier, vol. 39(9), pages 5509-5518, September.
- 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.
- McPhail, Lihong Lu, 2011. "Assessing the impact of US ethanol on fossil fuel markets: A structural VAR approach," Energy Economics, Elsevier, vol. 33(6), pages 1177-1185.
- Mads Greaker & Michael Hoel & Knut Einar Rosendahl, 2012.
"Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs?,"
CESifo Working Paper Series
4030, CESifo Group Munich.
- Mads Greaker & Michael Hoel & Knut Einar Rosendahl, 2012. "Does a renewable fuel standard for biofuels reduce climate costs?," Discussion Papers 720, Research Department of Statistics Norway.
- Drabik, DuÅ¡an & de Gorter, Harry, 2013. "Emissions from Indirect Land Use Change: Do they Matter with Fuel Market Leakages?," Review of Agricultural and Applied Economics (RAAE), Faculty of Economics and Management, Slovak Agricultural University in Nitra Provider-Homepage: http://www.roaae.org & Association of Agricultural Economists in Slovakia (APES), vol. 16(2).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If references are entirely missing, you can add them using this form.