Biofuel prices: Drivers and underlying assumptions · 2019-11-11 · Crude oil prices affect...

Biofuel prices: Drivers and underlying assumptions

Céline GinerOECD Trade and Agriculture

Roundtable on the Cost of Biofuels March 28 2012

Biofuel prices: drivers and underlying assumptions

Background:Modelling framework

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• AGLINK-COSIMO model:– Global coverage– Temperate zone agricultural commodities:

• Crops• Crop products• Meat commodities• Dairy• Biofuels

• Medium-term projections published annually in the OECD-FAO Agricultural Outlook: www.agri-outlook.org

AGLINK-COSIMO and the Outlook

Role for the OECD and the FAO

in assessing the impacts of policies on:

– agricultural and biofuel markets

– achievement of policy objectives(GHG mitigation including land use changes)

Why modelling biofuels in AGLINK-COSIMO?

Increased links between energy and agricultural sectors

Development of biofuels has been driven by policies

Basic Characteristics of the Modelling ApproachIssue: Ethanol Biodiesel

1st-generation biofuels

Additional demand for cereals, sugar cropsBy-production of animal feed

Additional demand for vegetable oils

2nd-generation

biofuels

Exogenous path same

Use in motor vehicles

Low-level blends and FFVs demand is induced by theethanol / gasoline price ratio

Overall share in diesel fuels induced by thebiodiesel/diesel priceratio

Biofuelsupportpolicies

- Mandates- Trade barriers (tariffs)- Tax concessions- Direct subsidies

same

A major challenge: production costs

World ethanol and biodiesel markets:an overview

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Growing importance of biofuels

Links between biofuels and agricultural markets

0%

5%

10%

15%

20%

25%

30%

35%

Sugar cane Coarse grains Sugar beet wheat Vegetable oils

Shareoffeedstockusedtoproducebiofuelsinglobalproduction

2005 2011 2021

World biofuel prices

Key drivers and underlying assumptions

1/ Crude oil prices2/ Policies3/ Availability of second generation biofuels

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1/ Crude oil prices

Crude oil prices affect biofuel and agricultural markets :

1/ Fossil fuels are directly linked to crude oil prices

effect on the demand for biofuels

2/ Energy: important share in agricultural production costs and is required in the conversion of feedstock to biofuels

effect on the supply of biofuels

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1/ Crude oil prices

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2/ Biofuel policies

Production and use is driven by:- Renewable Fuel standard (RFS2) Final Rule in the US- Renewable Energy Directive in the EU:

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European Union ethanol market

European Union biodiesel market

3/ Availability of second generation biofuels

Development of second generation biofuels depends:- on the advancement of R&D in coming years- on current investments - on the continuation of biofuel policies / mandates

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Key uncertainties

• Evolution of policies in major OECD countries

• Development of new technologies

• Export potential of developing countries especially Brazil

• Sustainability criteria

For more information

• Visit our website: www.oecd.org/agriculture

• Contact us: celine.giner@oecd.org

• Follow us on Twitter: @OECDagriculture

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• Direct support to producers: It generates a wedge between wholesale and incentive price directly enters supply response

• Import tariff:It generates a wedge between world and domestic prices directly enters price transmission

• Tax credit:It generates a wedge between wholesale and retail prices directly enters price link

• Blending obligation:It creates a lower bound to blending shares enters the blending share equations

• Biofuel targets:Not a measure that drives private decisions ignored

Representation of support policies

• Production of ethanol and biodiesel– Production capacity building, capacity use

• Depending on biofuel prices and production costs (crop prices) and related support measures

• Dynamics of supply response– Crop use / by-product output in fixed but dynamic

proportions- 2nd generation biofuel production is exogenous

Principles of the biofuel modules (1/2)

• Fuel use of ethanol– 3 different levels (additive, low-level blend, ffv)– Shares depend on ethanol-gasoline price ratio and

related support measures, blending obligations– Neat fuel (or E85) share also depending on the FFV

share in vehicle fleet• Fuel use of biodiesel

– Simpler representation depending on biodiesel-diesel price ratio and related support measures, blending obligations

Principles of the biofuel modules (2/2)

US ethanol

US ethanol

Brazil ethanol

Ethanol production and use in 2021

Biodiesel production and use in 2021