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|GTAP Resource #2732|
"Biofuels and their By-Products: Global Economic and Environmental Implications"
by Taheripour, Farzad, Thomas Hertel, Wally Tyner, Jayson Beckman and Dileep Birur
Several papers have used CGE models and addressed the economy-wide and environmental consequences of producing biofuels at a large scale. These papers mainly argue that since biofuels are mostly produced from agricultural sources, their effects are largely felt in agricultural markets with major land use and environmental consequences. In this paper, we argue that virtually all of these studies have overstated the impact of liquid biofuels on agricultural markets due to the fact that they have ignored the role of by-products (BYPs)resulting from the production of biofuels.
The importance of incorporating BYPs of biofuel production in economic models is well recognized by some partial equilibrium analyses of biofuel production. However, this issue has not been tackled by those conducting CGE analysis of biofuels programs. Accordingly, this paper explicitly introduces biofuel BYPs (DDGS and oilseed meals, major BYPs of grain based ethanol and biodiesel) into the GTAP database and modifies the GTAP-E model to analyze the economic and environmental impacts of the US-EU biofuel mandate policies designed to stimulate bioenergy production and use in the US and EU. Unlike many CGE models which are characterized by single product sectors, here grain based ethanol and biodiesel are produced in conjunction with their BYPs.
We show that models with and without BYPs demonstrate different portraits from the economic impacts of the US-EU biofuel mandates for the world economy in 2015. While both models demonstrate significant changes in the agricultural production pattern across the world, the model with BYPs shows smaller changes in the production of cereal grains and larger changes for oilseeds products in the US. In the presence of BYPs, prices change more generously due to the mandate policies. Finally, we show that incorporating BYPs into the model significantly changes the land use consequences of the US-EU biofuel mandate polices.
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