Modeling the global trade and environmental impacts of biofuel policies

Aug 2010

There is rising skepticism about the potential positive environmental impacts of first generation biofuels. Growing biofuel crops could induce diversion of other crops dedicated to food and feed needs. The relocation of production could increase deforestation and bring significant new volumes of carbon into the atmosphere. In this paper, IFPRI develops a methodology for assessing the indirect land use change effects related to biofuel policies in a computable general equilibrium framework. They rely on the trade policy model MIRAGE and on the GTAP 7 database, both of which have been modified and improved to explicitly capture the role of different types of biofuel feedstock crops, energy demand and substitution, and carbon emissions. Land use changes are represented at the level of agroecological zones in a dynamic framework using land substitution with nesting of constant elasticity of transformation functions and a land supply module that takes into account the effects of economic land expansion. In this integrated global approach, the authors capture the environmental cost of different land conversions due to biofuels in the carbon budget, taking into account both direct and indirect carbon dioxide emissions related to land use change. They apply this methodology to look at the impacts of biofuel (ethanol) policies for transportation in the United States and in the European Union with and without ethanol trade liberalization. They demonstrate how emissions released because of ethanol programs significantly worsen the total carbon balance of biofuel policies. Ethanol trade liberalization benefits are ambiguous and depend highly on the parameters governing land use change, particularly in Brazil. They conclude by pointing out the critical aspects that have to be refined in order to improve our understanding of the environmental implications of biofuel development.
The paper is organized as follows. In section 2, the initial modeling framework and the modifications that were done to introduce biofuels and improve the representation of the agricultural and energy markets in the MIRAGE model and database is described. In section 3, it is explained how land use change effects, including a description of the land use data and modeling assumptions are captured. It is shown how direct and indirect carbon dioxide (CO2) emissions from land use change are taken into account in the model in section 4. In section 5, this modeling framework is applied to a U.S. and E.U. ethanol mandate scenario with and without trade liberalization, and the results of sensitivity analyses concerning some elasticities and parameters are presented. In section 6, IFPRI offers some conclusions and recommendations for future research.

By: A. Bouët, B. V. Dimaranan, H. Valin (IFPRI)

 
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