Biofuels, technological change and uncertainty: Evidence from France

In September 2013, the EU Parliament has called for a 6% limitation of crop-based biofuels (instead of 10% initially) and proposed a 2.5% binding incorporation target for cellulosic biofuels by 2020. In spite of this stated objective, the horizon of a large-scale adoption for advanced biofuels remains largely uncertain. Indeed, biofuels competitiveness is tightly linked to crude oil prices that also follow an uncertain evolution. In this context, including both uncertainties into the same analysis framework could be challenging. Focusing on France, this work proposes to address this issue. The main objective is to assess the economic and environmental impacts of first and second-generation biofuels. We also determine the conditions under which advanced biofuels could become available earlier regarding to the evolution of oil prices and public subsidies. We develop an original approach to incorporate uncertainty within a dynamic computable general equilibrium (CGE) model calibrated on 2009 French data. In line with the existing literature, cellulosic biofuels are modeled as latent technology (Reilly and Paltsev, 2007; Melillo et al., 2009) and biofuels by-products are included into the analysis (Taheripour et al., 2010). Using stochastic programming, we consider different scenarios depending on the oil price volatility and the changes in the fiscal incentives. This methodology allows us to compare the effects of first and second-generation biofuels as regards mainly agricultural land, food production and greenhouse gas (GHG) emissions. Results confirm the larger performance of advanced biofuels in terms of GHG emissions. They also show in which measure the technology improvement may reduce the pressure on food and land resources. Therefore, simulations provide guidelines for public deciders to design alternative fiscal policies to support advanced biofuels hand in hand with economic, social and environmental impacts.