Assessing the Effects of Biofuel Quotas on Agricultural Markets

Global biofuel production has experienced a strong growth over the last years. The assessment of the impact of the promotion of biofuels on agricultural markets in many studies has yielded mixed results. Differences in modelling approaches and in the choice of crucial parameter values can be made responsible for the diversity of results. In DART-BIO, we have carefully included these aspects and present an appropriate specification of the economic activities directly or indirectly influenced by the biofuel policies. The detailed description of DART-BIO makes all the assumptions and data sources transparent. The simulation of the world-wide biofuel quotas leads us to the conclusion that biofuels’ impact on prices has so far been rather overestimated. The proposed reform of the EU biofuel quota towards a 7 percent biofuel share – while international quotas remain intact - indeed reduces the pressure on agricultural prices. These reductions mainly concern biodiesel and its raw materials, since global biodiesel consumption is concentrated in the EU while bioethanol consumption is mostly outside the EU. Overall, the proposed reduction in biofuel quotas in the EU will indeed reduce the pressure on agricultural markets.