Biofuels targets and mandates around the world: Impacts on energy and agricultural markets

The production of biofuels is considered to be a promising energy source for a sustainable energy mix and it is politically promoted in many countries. While many studies focus on the impacts of biofuels on direct and indirect land use change as well as the resulting greenhouse gas emissions and food prices, the effects on energy markets have mostly been neglected. Furthermore, most studies concentrate on the European and US biofuel mandates, ignoring the impacts of biofuel mandates in other countries around the world, such as those in Brazil, Argentina and India, which definitively influence the global demand and supply of biofuels. Therefore, this paper aims to analyse price changes in agricultural and energy sectors under a gradual and simultaneous implementation of national biofuel targets. Biofuel production is not only driven by government mandates, high oil prices or efforts to mitigate climate change but also by the availability and competition for arable land, which is highly influenced by demographic pressure. To capture the complex interactions between these global economic drivers, we use the new version of the Dynamic Applied Regional Trade (DART) model, which is a recursive dynamic computable general equilibrium (CGE) model capable to analyse the economy-wide impacts of land use changes on a global scale. The results highlight the central role of key parameters to be considered when modelling land use and first generation biofuels and their impact on agricultural and energy markets. The results suggest that a partial analysis of national biofuel targets and mandates lead to different outcomes and may underestimate the worldwide impact of biofuel policies. Land use changes and substitution of fossil energy sources with biofuels induced by national biofuel quotas have significant direct and indirect effects across sectors and countries. Domestic and world food and energy markets react inducing changes in regional welfare.