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The Economics of Oil, Biofuel and Food Commodities

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  • BAHEL, Eric
  • MARROUCH, Walid
  • GAUDET, Gérard

Abstract

We study the effects on the food market of the introduction of biofuels as a substitute for fossil fuel in the energy market. We consider a world economy with an oil cartel and a competitive fringe of farmers producing energy in the form of biofuels. Farmers also produce food and sell it on the world food market. We determine the resulting relationship between prices in the energy and food markets and characterize the cartel's extraction path and the price path of energy. We show that the price of food will be growing as long the oil stock is being depleted, whether population is growing or not, and that it will keep growing after the oil stock is exhausted if population is growing. An analysis of the effects of the productivity of land use in either the food or the biofuel sectors is carried out.

Suggested Citation

  • BAHEL, Eric & MARROUCH, Walid & GAUDET, Gérard, 2011. "The Economics of Oil, Biofuel and Food Commodities," Cahiers de recherche 02-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    • Handle: RePEc:mtl:montec:02-2011
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    Cited by:

    1. Ngo Van LONG, 2014. "The Green Paradox under Imperfect Substitutability between Clean and Dirty Fuels," Cahiers de recherche 02-2014, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    2. Quentin Grafton, R. & Kompas, Tom & Van Long, Ngo, 2012. "Substitution between biofuels and fossil fuels: Is there a green paradox?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 328-341.
    3. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo.
    4. Batten, Jonathan A. & Kinateder, Harald & Szilagyi, Peter G. & Wagner, Niklas F., 2019. "Time-varying energy and stock market integration in Asia," Energy Economics, Elsevier, vol. 80(C), pages 777-792.
    5. Nachtigall, Daniel & Rübbelke, Dirk, 2016. "The green paradox and learning-by-doing in the renewable energy sector," Resource and Energy Economics, Elsevier, vol. 43(C), pages 74-92.
    6. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Do Biofuel Subsidies Reduce Greenhouse Gas Emissions?," International and Development Economics Working Papers idec10-01, International and Development Economics.
    7. Kang, Sang Hoon & Tiwari, Aviral Kumar & Albulescu, Claudiu Tiberiu & Yoon, Seong-Min, 2019. "Exploring the time-frequency connectedness and network among crude oil and agriculture commodities V1," Energy Economics, Elsevier, vol. 84(C).
    8. Stefan Dragos Cirstea & Andreea Cirstea & Irimie Emil Popa & Gabriel Radu, 2019. "The Role of Bioenergy in Transition to a Sustainable Bioeconomy – Study on EU Countries," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 21(50), pages 1-75, February.
    9. Bilgili, Faik & Koçak, Emrah & Kuşkaya, Sevda & Bulut, Ümit, 2020. "Estimation of the co-movements between biofuel production and food prices: A wavelet-based analysis," Energy, Elsevier, vol. 213(C).
    10. Dohnal, Mirko, 2016. "Complex biofuels related scenarios generated by qualitative reasoning under severe information shortages: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 65(C), pages 676-684.
    11. Tamás Mizik & Lajos Nagy & Zoltán Gabnai & Attila Bai, 2020. "The Major Driving Forces of the EU and US Ethanol Markets with Special Attention Paid to the COVID-19 Pandemic," Energies, MDPI, Open Access Journal, vol. 13(21), pages 1-22, October.
    12. Zhengyi Dong, 2019. "Does the Development of Bioenergy Exacerbate the Price Increase of Maize?," Sustainability, MDPI, Open Access Journal, vol. 11(18), pages 1-16, September.
    13. repec:aud:audfin:v:21:y:2019:i:50:p:75 is not listed on IDEAS
    14. Tokic, Damir, 2015. "The 2014 oil bust: Causes and consequences," Energy Policy, Elsevier, vol. 85(C), pages 162-169.
    15. Batten, Jonathan A. & Kinateder, Harald & Szilagyi, Peter G. & Wagner, Niklas F., 2017. "Can stock market investors hedge energy risk? Evidence from Asia," Energy Economics, Elsevier, vol. 66(C), pages 559-570.
    16. Lotfali Agheli, 2016. "Demand for Natural Gas in Food and Beverage Industries of Iran," International Journal of Energy Economics and Policy, Econjournals, vol. 6(3), pages 588-593.
    17. Hau, Liya & Zhu, Huiming & Huang, Rui & Ma, Xiang, 2020. "Heterogeneous dependence between crude oil price volatility and China’s agriculture commodity futures: Evidence from quantile-on-quantile regression," Energy, Elsevier, vol. 213(C).
    18. Amigues, Jean-Pierre & Moreaux, Michel, 2018. "Competing Land Uses and Fossil Fuel, Optimal Energy Conversion Rates During the Transition Toward a Green Economy Under a Pollution Stock Constraint," TSE Working Papers 18-981, Toulouse School of Economics (TSE).
    19. Hoel, Michael & Sletten, Thea Marcelia, 2016. "Climate and forests: The tradeoff between forests as a source for producing bioenergy and as a carbon sink," Resource and Energy Economics, Elsevier, vol. 43(C), pages 112-129.
    20. Jevgenijs Steinbuks & Thomas Hertel, 2016. "Confronting the Food–Energy–Environment Trilemma: Global Land Use in the Long Run," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(3), pages 545-570, March.

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    More about this item

    Keywords

    Biofuel; Oil depletion; population growth; energy price; food price;
    All these keywords.

    JEL classification:

    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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