EEP101-28_biofuel_April.30.2009

EEP101-28_biofuel_April.30.2009 - TheEconomicsofBiofuel...

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The Economics of Biofuel EEP 101, Spring 2008 David Zilberman Agricultural and Resource Economics | UC Berkeley
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Why Biofuel ? Increase in demand for fuel 18 cars/1000 people in China vs. 800 in US Tata’s Nano car  Constrained supply of oil Tar sands, Coal-To-Liquids have their own problems Crude oil produced in geopolitically unstable regions –  creating supply uncertainty Concerns about climate change and global warming Limited capacity to induce conservation (minimal  support for carbon tax,  CAFÉ  and  LCFS  have limited  capacity for change)  Biofuel are not new. They take advantage of human  skill - farming
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Biofuel and the market for staple  crops Crop Quantity $ Food Demand Supply Joint Demand Biofuel Demand Ag Expansion Supply w/ GMO Market for Food and Energy Crops $ Quantity
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The economic implications from  introducing biofuel Introduction of first-generation Biofuels: Increases food prices; and  Reduces food availability The effects can be countered by: Increased agricultural and conversion productivity Second generation biofuels Ag Biotech.
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Biofuel and the fuel market The less responsive fuel quantities are to fuel price  changes, the higher is the impact of ethanol on  gasoline price. The more responsive food quantities are to food price  changes, the lesser will be the impact of ethanol on  food price. We estimate the impact on prices under three  different scenarios of responsiveness of supply and  demand
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Simulating the impacts Three Scenarios: High – elastic food S (0.75) and D (-0.75),  inelastic gasoline S (0.25) and D (-0.25) Low – inelastic food S (0.3) and D (-0.3), elastic  gasoline S (0.75) and D (0.75) Mid – S (0.5) and D (-0.5)
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Simulating the impacts The estimated impact of 5 billion gallons of  ethanol on gasoline and crop prices under the  three scenarios: High Mid Low % change in gasoline price -3% -2% -1% % change in corn price 5% 7% 13% % change in soy price 2% 3% 7%
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Net Benefits of 2006 Biofuel Supply
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Net Benefits to US Consumers
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Net Benefits to ROW Consumers
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Net Benefits to Soy and Corn  Producers
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The indirect effect of oil markets When evaluating the benefits from biofuels, the  interactions with oil markets should be modeled.  Market structure matters.
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This note was uploaded on 03/18/2010 for the course ECON C125 taught by Professor Zelberman during the Spring '09 term at University of California, Berkeley.

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EEP101-28_biofuel_April.30.2009 - TheEconomicsofBiofuel...

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