Biofuels Do Brazil? - Impact of Multinational Biofuel Mandates on Agri-Food Trade

Since 2001, a rapid growth of biofuel production has been observed, driven by high crude oil prices, as well as by growing interest in reducing Greenhouse-Gas-Emissions (GHG).High oil prices encouraged innovations to reduce crude oil consumption and triggered governments all over the world to stimulate the production and consumption of biofuel.To assure a certain level of reduction of GHG emissions, mandatory targets, e.g., in terms of binding blending targets, have been established.These quantitative measures set targets for the share of renewable fuels (biofuel) in fuel consumption.Mandatory, but also voluntary, requirements are currently imposed for liquid biofuel in many major world economies except for Russia, Sorda et al. (2010).The consequences of biofuel policies on agricultural markets and GHG emissions have been analyzed in numerous papers.The extensive overview of such studies can be found in Rajagopal and Zilberman (2007).As Rajagopal and Zilberman point out, most of these studies focus on simulating the impact of renewable fuel mandates either at national or at global level.The majority of these studies, however, analyze either the impact of the 2009 EU Directive on Renewable Energy (DRE) or the consequences of the 2007 US Energy Independence and Security Act (EISA) or both; e.g., OECD ( 2008), Al-Riffai et al. (2010), Banse et al. (2008), Hertel et al. (2010).However, none of the studies simultaneously assess the global consequences of biofuel policies in those countries mentioned above.This is an important shortcoming because regions not covered by these analyses, but implementing biofuel targets, are often very important producers and exporters of agricultural commodities.The important question is: how will biofuel programs in these countries affect their future exports if more agricultural commodities are used for domestic purposes, e.g., as feedstocks for biofuel production, and how will the world prices of these products respond?In this paper, we address these questions by analyzing the consequence of obligatory biofuel mandate implementation in all regions having such a policy.As far as we know, this paper is a first attempt to do this.This paper explicitly examines the joint effect of obligatory biofuel mandates in the EU, the US, Canada, Brazil, the Rest of South America, India, and South-East Asia on land, food production, total GHG balance, trade and prices of agricultural commodities.We will also look at how these policies will influence biofuel production in regions where biofuel targets are voluntary, e.g., China, Japan, Australia and New Zealand.By using the CGE-model LEITAP, coupled to the integrated assessment model IMAGE, cross-sectoral effects of biofuel mandates, geographically explicit land use, and environmental effects like GHG balances and carbon stocks will also be taken into account. Biofuel policiesThe wide range of policy instruments is used to encourage and support biofuel production; FAO (2008), Rajagopal and Zilberman (2007), Sorda et al. (2010).Since biofuel production is not profitable in all countries, with the exception of Brazil, it has to be supported to become competitive.This is done by applying such policy instruments as subsidies and tax exemptions.Other forms of support include the policy measures influencing the biofuel supply chain directly or indirectly via subsidies for technological innovation, production factors subsidies, government purchases and

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