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Biofuels and Agricultural Commodity Prices: A Review of the Evidence Base

AUTHORS: Bettina Kretschmer – Catherine Bowyer – Allan Buckwell

IEEP has produced a review of the evidence base on the impacts of EU biofuel policies on global agricultural commodity prices, commissioned by ActionAid. Following up on the – continued – debate on indirect land use change, this is another complex dimension for EU policy makers responsible for renewable energy targets to consider. Given that the mandated use of biofuels in the EU and elsewhere constitutes a ‘demand shock’ for biofuel crops, price levels are projected to increase for these crops. According to economic equilibrium models, which are reviewed in the report, the extent of these increases ranges widely across studies, however.

In line with the current and projected future dominance of biodiesel use in the EU, projections tend to indicate larger impacts of EU biofuel use on oilseeds and vegetable oils than on ethanol feedstocks. But EU policies do not take place in isolation, with other countries such as the US pursuing their own biofuel targets. Taking global policies into account, projections tend to yield higher price effects for ethanol crops including staples, such as wheat and other cereals, as well as sugarcane. This literature review conducted by IEEP identifies impacts that are clearly significant and therefore warrant increased attention by policy makers, most notably the European Commission. The Commission is under an obligation to report on the social impacts of the Renewable Energy Directive’s transport target by the end of 2012. In this context, IEEP’s report provides a first discussion of some different policy responses. This discussion needs to be deepened in the coming months based on increased efforts to understand the impacts of biofuel-induced commodity price increases on different household structures, especially in developing countries.

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