Advanced vs conventional biofuels: Impacts of the latest reform of the European Union’s biofuel policy

Biofuel production has experienced strong growth over the last years. While global production increased sevenfold between 2000 and 2012 (IEA 2013), the growth slowed to relatively modest annual growth rates of 2% due to structural challenges and market uncertainties in key markets (IEA 2017). One of the key consumers of biofuels is the European Union. After promoting the use of biofuels with the Renewable Energy Directive (RED) which came into force in 2009, the EU recast the directive for the time period 2020-2030 (RED II). This new legislation limits the amount of biofuels and bioliquids produced from cereal and other starch-rich crops, sugars and oil crops counting towards the mandate and promotes the use of non-food crops for biofuel production. This paper quantifies the resulting impacts on global land use and agricultural markets. We use an updated version of the DART-BIO model, a global recursive-dynamic general equilibrium model. The model is based on the GTAP9 database (Aguiar et al. 2016). Following Calzadilla et al. (2016), the model includes bioethanol production from sugar cane/beet, wheat, maize and other grains; and biodiesel production from palm oil, soybean oil, rapeseed oil and other oilseed oils. DART-BIO explicitly accounts for the by-products generated during the production process of different vegetable oils and biofuels. Dried distillers grains with solubles (DDGS) are by-products of the production of bioethanol from grains and oilseed meals/cakes are by-products of different vegetable oil industries. To test the sensitivity of our results we test different assumptions on 1) elasticity of substitutions between feedstock used in the livestock sector, 2) availability of used cooking oil and straw, 3) different assumptions on crops with a high share of expansion into high-carbon stock by source country. In the result section we discuss implications for production, trade flows, and prices of agricultural goods and biofuel products.