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Economic and Environmental Impacts of Biofuels. Govinda R. Timilsina The World Bank, Washington, DC Fourth Berkeley Bioeconomy Conference March 24-26, 2011. Disclaimer. - PowerPoint PPT Presentation
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Govinda R. Timilsina
The World Bank, Washington, DC
Fourth Berkeley Bioeconomy ConferenceMarch 24-26, 2011
Economic and Environmental Impacts of Biofuels
Disclaimer
The views expressed in this presentation are those of the authors only, and do not necessarily represent the World Bank and its affiliated organizations
Presentation Outline
Introduction (Model/Data) Impacts on Land Use & Food Supply Impacts on Climate Change Mitigation Oil Prices and Biofuels Conclusions
Biofuel Production and Commodity Prices
0
50
100
150
200
250
300
2000 2002 2004 2006 2008 2010
Pric
e in
dex
(200
0 =
100)
Maiz Sugar
Wheat Soybean
Rice Sorghum
Barley
0
20
40
60
80
100
2004 2005 2006 2007 2008 2009
Biof
uel p
rodu
ction
(Bi
llion
Lite
r) Ethanol
Biodiesel
Biofuels
0
100
200
300
400
500
2000 2002 2004 2006 2008 2010
Pric
e in
dex
(200
0 =
100) Agriculture
Energy
Fertilizers
Ethanol 13.1% Biofuel 13.6%Biodiesel 15.6%
Maize -14.1% Agriculture 2.6%Sugar 65.3% Energy -18.8%Wheat -31.6% Fertilizers -49.8%Soybean -12.8%Sorghum -23.5%Barley -29.2%
% ChangeProduction (2008 - 2009)
Price (2008-2010)
World Bank Biofuel Studies
Study type Issues analyzed or investigated
Back
grou
nd
or re
view
st
udy
Biofuels: markets, targets and impacts Advanced biofuel technologies: status and barriers Second generation biofuels: economics and policies Are there any surplus grains to produce biofuels?
Parti
al
equi
libriu
m
mod
elin
g
Quantifying the role of biofuels in the global food crisis
Gen
eral
eq
uilib
rium
m
odel
ing
Biofuels, land-use change and food supply Biofuels and climate change mitigation Biofuels, global income distribution and poverty Biofuel subsidies and import duties World oil price and biofuels Carbon tax and biofuels
CGE Model
• Multi-sector, multi-region, global recursive dynamic CGE model
• The model is flexible enough to accommodate new regions/countries or sectors and is calibrated with GTAP database
• Nested CES and CET functional forms to represent production behavior and land supply, respectively
• Nonhomothetic Constant Difference of Elasticities (CDE) function form for households
• Detailed representation of land-use biofuel sectors
• Representation of bilateral and international trade
Data
• GTAP Data Version 7.1 (Base Year 2004; 112 countries, 57 sectors)
• As the existing GTAP database is limited for conducting biofuel analysis we disaggregate it further, introducing 7 new sectors:
– 1 sector for feedstock: Corn
– 2 sectors for fossil fuels: Gasoline and Diesel
– 4 sectors for biofuels (1st generation):
• 3 ethanol sectors: sugar ethanol, corn ethanol, and other grains ethanol,
• 1 biodiesel: biodiesel from rapeseed oil, soybean and palm oil
Regional and sector decomposition
• Computational limitations require aggregation of countries/regions and sectors
(GTAP: 112 regions & 57 sectors
or 112* 57 = 6,384 equations for 1
variable only defined on 2 dimensions)
• Focus on main countries/regions producer of biofuels
• Keep as much detail as possible for agriculture (especially biofuel feedstocks) and for energy sectors
1 Paddy rice2 Sugar (cane & beet)3 Vegetables, fruit4 Wheat5 Corn6 Other cereal grains7 Oilseeds8 Livestock9 Sugar Ethanol
10 Corn Ethanol11 Grains Ethanol12 Biodiesel13 Processed food14 Forestry15 Coal16 Crude oil17 Natural gas18 Other mining19 Gasoline20 Diesel21 Refined oil22 Chemicals23 Other manufacturing24 Electricity25 Gas distribution26 Construction27 Transport services28 Other services
1 Australia and New Zealand2 Japan3 Canada4 United States5 France6 Germany7 Italy8 Spain9 UK
10 Rest of EU & EFTA11 China12 Indonesia13 Malaysia14 Thailand15 Rest of East Asia & Pacific16 India17 Rest of South Asia18 Argentina19 Brazil20 Rest of LAC21 Russia22 Rest of ECA23 MENA24 South Africa25 Rest of Sub-Saharan Africa
Base Year, Baseline and Scenarios
• Base year: 2004
• Baseline or reference case: A business as usual scenario for 2009-2020 period. It includes policies already in place (e.g., already introduced mandates, subsidies)
• The model is calibrated in such a way that key variables (e.g., oil prices, population, GDP, investments, etc.) retain the historical values for 2004-2009 period
• Two scenarios for biofuel targets:
– Announced Targets (AT) scenario: all the announced biofuel targets are fully implemented by 2020, starting 2009
– Enhanced Targets (ET) scenario: all the announced biofuel targets are doubled (except for India – extremely high announced target) and fully implemented by 2020, starting 2009
• Biofuel targets are achieved by introducing direct subsidies to biofuels, the subsidies are financed through an increase of gasoline and diesel tax (government revenue neutrality)
Targets and Required Subsidies and Taxes
AT ET AT ET AT ETAustralia and New Zealand 1.23 2.46 36.40 57.71 0.13 0.34Japan 0.60 1.20 14.80 45.68 0.05 0.19Canada 4.10 8.20 48.88 68.11 0.50 0.91United States 4.07 8.14 1.01 28.21 0.04 0.77France 10.00 20.00 58.33 74.55 1.05 1.80Germany 10.00 20.00 43.25 65.01 0.95 1.91Italy 10.00 20.00 65.29 78.38 0.81 1.30Spain 10.00 20.00 60.99 75.11 0.64 1.48UK 10.00 20.00 73.14 82.90 0.44 1.06Rest of EU & EFTA 10.00 20.00 75.60 84.82 0.65 0.97China 3.65 7.30 18.20 47.22 0.37 1.34Indonesia 5.00 10.00 19.24 49.16 0.41 1.52Malaysia 1.81 3.62 1.59 39.31 0.02 0.60Thailand 5.20 10.40 51.58 73.69 0.91 1.80Rest of East Asia & Pacific 1.49 2.98 42.00 57.77 0.19 0.38India 20.00 20.00 58.37 58.92 4.14 4.22Rest of South Asia - - - - - -Argentina 5.00 10.00 52.10 70.32 0.86 1.53Brazil 11.77 23.54 - 2.76 - 0.93Rest of LAC 1.48 2.96 16.30 44.58 0.10 0.39Russia - - - - - -Rest of ECA - - - - - -MENA - - - - - -South Africa 2.00 4.00 0.93 10.05 0.03 0.68Rest of Sub-Saharan Africa - - - - - -
Target (%) Subsidy Rate (%) Tax Rate (%) Country/Region
Global Biofuels Penetration
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2005 2010 2015 2020
Reference Case
AT Scenario
ET Scenario
Impacts on Biofuel Production – Country/Region
Brazil, France, India would realize the relativelyhigher production of biofuels; while biofuel production increase is caused by international trade in Brazil, the increase in other countries is driven by domestic targets
Countries which do not have biofuel targets could experience decrease in production due to increased export demand for their biofuel feedstock, but the reductions are negligible
0 5 10 15 20
Australia and New Zealand
Japan
Canada
United States
France
Germany
Italy
Spain
UK
Rest of EU & EFTA
China
Indonesia
Malaysia
Thailand
Rest of East Asia & Pacific
India
Argentina
Brazil
Rest of LAC
South Africa
ET Scenario
AT Scenario
Baseline
Global Production of Biofuels in 2020
% Change from the baseline
0 100 200
Developed World
Developing World
Global
ET
AT
Reference
0 100 200 300
Developing World
Developed World
GlobalET
AT
Production in value (2004 Billion US$)
Impacts on GDP in 2020(% change from the baseline)
Countries which have already advanced in biofuels production and produce feedstock whose price increases exhibit positive or small negative impacts
Oil producing countries such as MENA, Russia would suffer due to reduction in their oil exports which is replaced by biofuels
For sub-Saharan Africa, it is the aggregation effect, highly influenced by Nigeria
-0.30 -0.23 -0.15 -0.08 0.00 0.08
Aus-NZJapan
CanadaUnited States
FranceGermany
ItalySpain
UKRest of EU & EFTA
ChinaIndonesiaMalaysiaThailand
Rest of EAPIndia
Rest of SAArgentina
BrazilRest of LAC
RussiaRest of ECA
MENASouth AfricaRest of SSA
AT ET
Change in Agricultural Production in 2020
-3.0 0.0 3.0 6.0 9.0 12.0 15.0
Agriculture
Paddy rice
Sugar crops
Corn
Wheat
Other grains
Oil seeds
Fruit & vegetables
Livestocks
ET
AT
AT ETAgriculture 14.6 38.3Paddy rice -0.2 -0.5Sugar crops 5.8 9.7Corn 1.4 5.5Wheat 1.9 5.6Other grains 3.0 7.5Oil seeds 4.3 13.6Fruit & vegetables-1.0 -1.8Livestocks -0.6 -1.3
2004 Billion US$% change from the baseline
Impacts on Total Agricultural Production
EU countries exhibit the higher increase in agricultural outputs due to large scale expansion of biofuels
None of the countries in the world would have a reduction in agricultural outputs
Countries which experience decrease in biofuel production would still get their agricultural outputs increased due to their increased export demands for biofuel feedstock
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
World totalHigh-income
Australia and New ZealandJapan
CanadaUnited States
FranceGermany
ItalySpain
UKRest of EU & EFTA
Middle & Low-incomeChina
IndonesiaMalaysiaThailand
Rest of East Asia & PacificIndia
Rest of South AsiaArgentina
BrazilRest of LAC
RussiaRest of ECA
MENASouth Africa
Rest of Sub-Saharan Africa
ET
AT
% change from the baseline in 2020
Impacts on Commodities Prices
Prices of agricultural commodities increase due to direct and indirect pull from increased biofuel production
Energy prices decrease due to direct and indirect substitution of fossil fuels with biofuels
-2.0 0.0 2.0 4.0 6.0 8.0 10.0
Paddy riceSugar (cane & beet)
Vegetables, fruitWheat
CornOther cereal grains
OilseedsLivestock
EthanolBiodiesel
Processed foodForestry
CoalCrude oil
Natural gasOther mining
GasolineDiesel
Refined oilChemicals
Other manufacturingElectricity
Gas distributionConstruction
Transport servicesOther services
AT
ET
% Change from the baseline in 2020
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
AT ET AT ET AT ET
Forest Pasture Crops
Impacts on Global Land Use (% change from the baseline)
Impacts on Land Use by Country(% change from the baseline)
-2.0 -1.5 -1.0 -0.5 0.0 0.5
Australia and New Zealand
Japan
Canada
United States
France
Germany
Italy
Spain
UK
Rest of EU & EFTA
China
Indonesia
Malaysia
Thailand
Rest of East Asia & Pacific
India
Rest of South Asia
Argentina
Brazil
Rest of LAC
Russia
Rest of ECA
MENA
South Africa
Rest of Sub-Saharan Africa
Crops Pasture Forest
-6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0
Crops Pasture Forest
AT Scenario ET Scenario
Impacts on Food Supply (Change from the baseline, Billion US$)
-16.0
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
AT ET
High-income Middle & Low-income
Impacts on Food Supply by Country (Change from the baseline)
Country/Regions AT ET US$ Billion % US$ Billion %World total -6.5 -0.1 -14.1 -0.2High-income -2.2 -0.1 -5.8 -0.2Australia and New Zealand 0.0 0.0 -0.1 -0.1Japan -0.1 0.0 -0.2 -0.1Canada 0.0 -0.1 -0.1 -0.2United States -0.9 -0.1 -2.5 -0.3France -0.1 0.0 -0.3 -0.1Germany -0.2 -0.1 -0.6 -0.2Italy -0.1 -0.1 -0.3 -0.2Spain -0.1 0.0 -0.2 -0.1UK -0.2 -0.1 -0.4 -0.1Rest of EU & EFTA -0.5 -0.1 -1.1 -0.2Middle & Low-income -4.3 -0.2 -8.3 -0.3China -0.5 -0.1 -1.3 -0.2Indonesia -0.1 -0.1 -0.1 -0.1Malaysia 0.0 -0.1 0.0 -0.3Thailand 0.0 0.1 0.0 0.1Rest of East Asia & Pacific 0.0 0.0 -0.2 -0.1India -1.4 -0.4 -1.2 -0.3Rest of South Asia 0.0 0.0 -0.1 -0.1Argentina 0.0 0.0 0.0 -0.1Brazil 0.0 0.0 0.0 0.0Rest of LAC -0.2 -0.1 -0.6 -0.3Russia -0.3 -0.2 -0.7 -0.6Rest of ECA 0.0 0.0 0.0 0.0MENA -1.3 -0.4 -3.0 -1.0South Africa 0.0 0.0 0.0 0.0Rest of Sub-Saharan Africa -0.5 -0.2 -1.2 -0.5
Biofuel penetration, GHG emissions and carbon payback period
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2010
2015
2020
2025
2030
2035
2040
AT Scenario
-4000
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
2010
2015
2020
2025
2030
2035
2040
AT Scenario
Fossil fuels Land-Use Net0
10
20
30
40
50
60
2010
2015
2020
2025
2030
2035
2040
AT Scenario
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2010
2015
2020
2025
2030
2035
2040
ET Scenario
0
10
20
30
40
50
60
2010
2015
2020
2025
2030
2035
2040
ET Scenario
-10000
-7500
-5000
-2500
0
2500
5000
7500
10000
12500
15000
2010
2015
2020
2025
2030
2035
2040
ET Scenario
Fossil fuels Land-Use Net
GHG emissions: Deforestation vs. No-Deforestation (Million tCO2)
-10,000
-5,000
0
5,000
10,000
15,000
Fossil Fuels
Land Use
Net Fossil Fuels
Land Use
Net Fossil Fuels
Land Use
Net Fossil Fuels
Land Use
Net
AT ET AT ET
Deforestation No-deforestation
2020
2030
2040
Oil Price & Biofuels: Scenarios
Source: EIA (2009) and IEA (2009) for baseline data for period 2009-2015.
• Scenarios: 25% to 100% increase from the baseline prices;
• 2020 price in the baseline would be 65% higher than the 2009 level;
• 2020 prices under the 25%, 50% and 100% scenarios are 106%, 147% and 230% higher than the 2009 level.
Year Baseline
25% 50% 100%
2009 56
2010 67
2015 87 109 130 174
2020 93 116 140 186
2009 0
2010 19
2015 54 92 131 208
2020 65 106 147 230
Scenario
US$/barrel (2008 price)
% Change from 2009 level
Biofuel Penetration under Various Oil Price Scenarios
2%
4%
6%
8%
10%
12%
14%
2010 2015 2020
Baseline 25% 50% 100%
Impacts of 50% Oil Price Increase on Production of Biofuel Feedstock
-2.8%
2.4%
-1.0%-0.4%
3.7%
-1.7%
-3.2%-3.7%
Rice
Corn
Wheat
Other Grains
Sugar crops
Oil Seeds
Fruits & Vegetables
Livestock
Key Conclusions
Biofuel mandates, as announced or doubling them, would cause moderate impacts on the economy (price changes across commodities: -2% to 9%; GDP impacts -0.35 to 0.15 across countries)
It would cause significant re-allocation of lands between forest, pasture and crops leading to deforestation and pasture land conversion, particularly in countries with higher targets
No net reduction of GHG emissions is found in the short-run; in the long-run GHG reduction is possible, but takes 1 to 20 years depending upon if deforestation is avoided or not
Oil price play a significant role in stimulating biofuels; if oil prices rise
150% from their 2009 levels by 2020, rather than the 65% in the baseline, the penetration of biofuels would be even higher than that would be caused by current mandates and targets
Govinda R. Timilsina
Sr. Research Economist (Climate Change & Clean Energy)
Development Research Group
The World Bank
1818 H Street, NW
Washington, DC 20433, USA
Room: MC3-451
Mail Drop: MC3-300
Tel: 1 202 473 2767
Fax: 1 202 522 1151
E-mail: [email protected]
THANK YOU