Impact of biofuel policies on markets and trade
World oil prices and estimated ethanol costs of production from maize and sugar US cents per litre 6 5 4 3 2 1 1995M1 1997M1 1999M1 21M1 23M1 25M1 27M1 Ethanol cost from sugar Crude oil in ethanol equiv Ethanol from maize
Key questions How important are key bio-fuel policies in affecting global biofuel and commodity markets? tariffs, tax exemptions, subsidies, mandates Is the potential sum effect of key bio-fuel policies large?
Cosimo-Aglink Model OECD FAO Agriculture Outlook 27 baseline for initial implementation and testing collaborative work with large credit to OECD for the important modules of USA, EU and Brazil Aglink-Cosimo Model about 2 commodities 58 countries and regions ethanol and biodiesel markets 17 countries results presented are preliminary, we are still testing and refining key parameters and specifications
Biofuel Policies USA, EU, Brazil, Canada highly detailed policy structure Other developing countries Tariffs Taxes Subsidies Blending mandates
Impact of a 1% increase in world oil price on world commodity prices 12 1 8 6 4 2 Crude oil Biodiesel Ethanol Maize Sugar Molasses Veg oil 26 27 28 29 21 211 212 213 214 215 216
US tariff/tax credit make ethanol from maize economic in US, not elsewhere 8 7 6 5 World ethanol price 4 3 US ethanol price 2 1 2 22 24 26 28 21 212 214 216 US ethanol net cost from maize
Mozambique will EBA limit expansion of ethanol production? 7 US cents per litre 6 5 4 3 2 1 2 22 24 26 28 21 212 214 216 Moz. ethanol price Ethanol net costs from cane
Lessons from simple scenarios: Tariff liberalization US tax exemption for ethanol and biodiesel US tariff/tax exemption Global mandates sum effect
Impact of limited tariff liberalization on biofuel prices 25 Percent change 2 15 1 5 26 27 28 29 21 211 212 213 214 215 216 World ethanol price World biodiesel price
Mozambique ethanol tariff liberalization lowers incentive for biofuel production? 7 US cents per litre 6 5 4 3 2 1 22 24 26 28 21 212 214 216 Scenario price Base price Scenario cost Base cost
Estimated changes in net trade due to tariff reductions 1 Absolute change 5-5 -1-15 -2 26 27 28 29 21 211 212 213 214 215 216 USA Brazil EU
Change from Base % -1-2 -3-4 -5-6 -7-8 -9 Removal of US tax exemption for ethanol: impact on world prices 26 27 28 29 21 211 212 213 214 215 216 Ethanol Biodiesel Maize Veg oil
Removal of US tax exemption for ethanol: impact on ethanol margin US cents per litre 16 14 12 1 8 6 4 2-2 -4 26 27 28 29 21 211 212 213 214 215 216 Base Removal of US tax exemption
Removal of US tax exemption for ethanol: impact US balances Change from Base 5-5 -1-15 -2 26 27 28 29 21 211 212 213 214 215 216 Net trade Ethanol production Ethanol consumption
Removal of US tariff and tax exemption for ethanol: impact on net trade Change from Base 15 1 5-5 -1-15 -2-25 -3-35 26 27 28 29 21 211 212 213 214 215 216 USA Brazil
Removal of US tariff and tax exemption for ethanol: impact on world prices Change from Base % 6 4 2-2 -4-6 -8 26 27 28 29 21 211 212 213 214 215 216 Ethanol Biodiesel Sugar Maize Veg oil
Blending targets mandates or obligations what is the cumulative impact? Ethanol Biodiesel Target Year Target Year Australia 35m litres - Brazil 25% 5% 213 Canada 5% 21 2% 212 Columbia 1% - Ethiopia - - EU 1% 22 1% 22 India - - Indionesia - 1% Malaysia - 5% 28 Mozambique 5% 5% Peru 7.8% 5% Philippines 5% 1% South Africa 2% 213 Tanzania 2% 2% Thailand 1% Turkey - - United States 6b litres/maize 215 4b litres 212 Viet Nam 5% - Source: OECD, FAO
Impact of Mandates/Obligations on markets: impact on world prices Change from Base % 35 3 25 2 15 1 5-5 26 27 28 29 21 211 212 213 214 215 216 Ethanol Biodiesel Veg Oil Maize Sugar
Conclusions The biofuel industry is new and rapidly evolving, and only recently economic without policy intervention. Policies have serious implications for international markets and trade, and prices. Distorted biofuel/agriculture markets affect location and development of the global industry. International policy disciplines are needed to prevent a repeat of global policy failure.