Global trade and environmental impact study of the EU biofuels mandate

Mar 2010

This study was commissioned by the Directorate General for Trade of the European Commission (DG TRADE). The initial objective was to examine the potential economic and environmental impact of various EU trade policy options with respect to biofuels. However, the model developed for this purpose was also a very useful contribution to the Commission's impact assessment and report on ILUC and to possible Commission proposals on the methodology to deal with ILUC under biofuel production. The objective of the study was thus expanded to analyse the global agricultural production, trade and environmental impact of the EU biofuel policy as concretised in the RED. The study pays particular attention to the ILUC effects of the main biofuel feedstocks.
This quantitative analysis of the global economic and environmental impact of biofuel development is conducted using an extensively modified version of the MIRAGE global computable general equilibrium model (CGE).
The impact of the EU biofuels policy are assessed under alternative trade policy assumptions: business as usual trade policy; full multilateral trade liberalization in biofuels; and bilateral trade liberalization between the EU and MERCOSUR. These trade policy alternatives are calculated against a baseline scenario which incorporates the latest forecasts of energy prices by the IEA and OECD economic growth. Sensitivity analyses are conducted to assess the robustness of the model results to alternative assumptions about the size of the EU biofuels policy target, and on several parameter settings.
A brief review of previous studies that have quantified the potential economic and environmental impact of biofuel development is provided in section 2 of the report. Section 3 includes an overview of the data development and model development involved in the study. More detailed discussions of the various components of the methodology are relegated to annexes. The baseline scenario and alternative trade policy scenarios analyzed in the study, along with the variations considered for sensitivity analyses, are presented in Section 4. Results and discussions are provided in Section 5 and concluding remarks are given in Section 6.

By: P. Al-Riffai, B. Dimaranan, D. Laborde (IFPRI)

 
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