Biofuels Production Impacts

Biofuels require subsidies. ‘Demand for biofuels will increase over the next 10 years, but producers will still depend on government support. Oil prices have seen a sustained increase since 2004, and consumer demand for biofuels is greater than before and is likely to accelerate in coming years, according to a report by the Organisation for Economic Co-operation and Development. However, the organization notes that very few countries have enough raw materials to produce biofuels at a cost that can compete with petroleum products without government subsidies.’

OECD Study: Agricultural market impacts of future growth in the production of biofuels. ‘The principal objective of the present study is to look at the economics of biofuel production and the likely impacts of an expected growth in biofuel-related demand for agricultural products on commodity markets. It describes the economics and policies in biofuel markets by bringing together available information on production technologies, costs and policy measures in major biofuel producing countries. Additionally based on assumptions where data are missing, production costs are calculated for the year 2004 (the base year for the impact analysis below) and compared across countries and production processes as well as with oil-based fuel prices to show the relative competitiveness of biofuel production. Impacts on agricultural markets are analysed using the OECD partial equilibrium model for temperate zone agricultural commodities, Aglink, in connection with the FAO-counterpart, Cosimo, and the OECD World Sugar Model. A number of modifications are made to the models to allow for this type of analysis, as well as to model the impact of changes in crude oil prices on agricultural production costs. Model results of a set of scenarios are compared in order to identify the specific impacts of expected growth in biofuels production as well as those of changes in world crude oil prices.’

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