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World oil price and biofuels : a general equilibrium analysis

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  • Timilsina, Govinda R.
  • Mevel, Simon
  • Shrestha, Ashish

Abstract

The price of oil could play a significant role in influencing the expansion of biofuels. However, this issue has not been fully investigated yet in the literature. Using a global computable general equilibrium model, this study analyzes the impact of oil price on biofuel expansion, and subsequently, on food supply. The study shows that a 65 percent increase in oil price in 2020 from the 2009 level would increase the global biofuel penetration to 5.4 percent in 2020 from 2.4 percent in 2009. A doubling of oil price in 2020 from its baseline level, or a 230 percent increase from the 2009 level, would increase the global biofuel penetration in 2020 to 12.6 percent. The penetration of biofuels is highly sensitive to the substitution possibility between biofuels and their fossil fuel counterparts. The study also shows that aggregate agricultural output drops due to an oil price increase, but the drop is small in major biofuel producing countries as the expansion of biofuels would partially offset the negative impacts of the oil price increase on agricultural outputs. An increase in oil price would reduce global food supply through direct impacts as well as through diversion of food commodities and cropland toward the production of biofuels.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5673.

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Date of creation: 01 Jun 2011
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Handle: RePEc:wbk:wbrwps:5673

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Related research

Keywords: Energy Production and Transportation; Climate Change Economics; Markets and Market Access; Renewable Energy; Food&Beverage Industry;

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References

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  1. Edwin van der Werf, 2007. "Production Functions for Climate Policy Modeling: An Empirical Analysis," Kiel Working Papers 1316, Kiel Institute for the World Economy.
  2. Jean-Marc Burniaux & Jean Chateau, 2008. "An Overview of the OECD ENV-Linkages Model," OECD Economics Department Working Papers 653, OECD Publishing.
  3. Birur, Dileep & Hertel, Thomas & Tyner, Wally, 2008. "Impact of Biofuel Production on World Agricultural Markets: A Computable General Equilibrium Analysis," GTAP Working Papers 2413, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
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Cited by:
  1. Alessio Anzuini & Marco J. Lombardi & Patrizio Pagano, 2012. "The impact of monetary policy shocks on commodity prices," Temi di discussione (Economic working papers) 851, Bank of Italy, Economic Research and International Relations Area.

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