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ECONOMIC IMPACTS

 

The expansion of biofuels over the next few decades

to meet various national targets will have significantly

different economic impacts across countries. Countries

like Brazil, Indonesia, and Argentina, who are all major

biofuel-exporting countries, would benefit the most as

higher global demand increases their exports of

biofuels and feedstocks. Other countries, will be

slightly disadvantaged, as they will have to increase

the quantity and cost of their agricultural imports and

allocate a significant amount of domestic food crop

production to biofuels. Those countries, due to their

limited domestic production capacity, would be

unable to meet their ambitious targets for biofuels.

 

There was an almost 150 percent increase in the production of global biofuels between 2004 and 2010, from 42 billion liters to 104 billion liter. Even though there is a huge increase in the percentage, biofuels only make up a small share of total fuel use; about 3 percent of the total liquid fuel for global road transportation. However, the share would exceed 8 percent by 2020 if the stated national targets and/or mandates are met. Over the next few years, the predicted expansion of biofuels will not strongly affect the global petroleum markets, but will slowly increase world oil prices , which in turn will induce greater substitution of biofuels for petroleum based fuels. 

 

                                                                            

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

     The expansion of biofuels will only cause a minor reduction in GDP (0.02% in 2020) at the globally aggregated level. The prices of many food staples would increase: the price of sugar could rise by as much as 8 percent, and the prices of corn and other major grains by 3 percent. Even though the aggregated impacts of biofuels on food supply were relatively insignificant, a drop on supply combined with an increase in prices of basic staples could still become burdensome for poor urban households in places like sub-Saharan Africa and South Asia. As more land is allocated for the production of feedstock crops such as sugar crops, corn, oilseeds, and  wheat, less land is left for non-feedstock production. The practice of using land to grow feedstock instead of food leads to increasing food prices, causing it to be one of the triggers of the World Food Crisis of 2007 and 2008. 

Citation T-11

There are also numberous economic benefits, though the main economic benefits received from increasing biofuels production are enjoyed by major biofuel exporters. Other benefits include the incentive to better make use of otherwise idle land, as in the case of a number of countries in Sub-Saharan Africa. More jobs are created for rural and relatively unskilled workers in the labor force. In addition, households in rural areas benefit from higher prices for agricultural commodities. Lastly, according to World Bank,  “while biofuels would cost more than fossil fuel alternatives, they can reduce macro-economic exposure to volatility in payments for imported petroleum products in countries that can expand domestic biofuels production.  However, the increased use of domestic biofuels will have only a limited effect on the domestic price of liquid fuels, as oil prices are set in a global market and the price of biofuels would be bid up to the extent that demand can move relatively quickly from petroleum fuels to biofuels.  That substitution possibility in turn will depend on the vehicle stock, and the capacity of the domestic fuel distribution system to deliver additional biofuels.” 

Citation I-37

Citation I-41

Citation I-44

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