Price dependence of biofuels and agricultural products on selected examples
From Firenze University Press Journal: Bio-based and Applied Economics (BAE)
Wioleta Sobczak, Institute of Economics and Finance, Warsaw University of Life Sciences
Jarosław Gołębiewski, Institute of Economics and Finance, Warsaw University of Life Sciences
To deal with the unprecedented pace of climate change caused by the accumulation of greenhouse gases in the atmosphere, there is a clear need to shift from an energy dependency on fossil fuels to renewable energy. Now, with environmental policy pushing to reduce greenhouse gas emissions, aided by recent advances in crop engineering and fermentation processes, the production of bioethanol and biodiesel has once again become viable and sustainable substitutes for petroleum-based fuels. Production of biofuels showed a growing tendency in the 1990s when the assumptions of the Common Agricultural Policy (CAP) indirectly supported the production of biofuels through guaranteed minimum prices, subsidies per hectare of production and compensation payments for set-aside land that, however, could be used to produce raw materials for biofuel production. Moreover, the 2003 CAP reform introduced a cultivation premium for production of energy crops on primary land (Lamers et al., 2011). It should be noted that in the case of the production of pollutants, more than a quarter of the total CO2 emissions are generated by the transport sector (Adams et al., 2020).
To mitigate the effects of global warming caused by the accumulation of greenhouse gases from climate change, it is imperative to reduce CO2 emissions from fuel combustion in car engines and to switch to alternative and cleaner fuels. It should be noted that the development of road transport in the world has led to a rapid increase in the demand for fuels, especially those derived from crude oil. Increased greenhouse gas emissions are due to the burning of fossil fuels and to changes in land use caused by human activities. Therefore, alternative solu-tions are sought, especially biofuels that could actually compete with conventional energy sources (Kurowska et al., 2020, Klikocka et al., 2019). It should be empha-sized that the known oil resources are limited resourc-es. Various studies set the date of the world peak in oil production in 1996–2035. That is why it is so important to pay attention to biomass-based energy technologies, which use waste or plant matter to produce energy with lower GHG emissions than fossil fuel sources (Sheehan, 1988). Thus, biofuels entered the market as an option to reduce dependence on crude oil and as a way to pur-sue social, economic and environmental sustainability (Chavez et al., 2010, Kurowska et al., 2020). As noted by Janda et al. (2012), increased interest in the application of biofuels as an alternative to liquid fossil fuels was observed after the oil crisis that occurred on world markets in the 1970s. In addition, the use of biofuels (compared to fossil fuels) contributes to the mitigation of greenhouse gas emissions (Hallam et al., 2006). Mov-ing on to the meaning of biofuels, it should be clari-fied that the term biofuel refers to liquid and gaseous fuels (bioethanol, biodiesel, biogas) and solids produced mainly from biomass (Demirbas, 2008). Biofuel is a non-polluting, locally available, sustainable and reliable fuel obtained from renewable sources (Vasudevan et al., 2005).
Liquid biofuels are primarily used to power vehicles, but they can also power engines or fuel cells to generate electricity (Demirbas, 2007). Bioethanol and biodiesel are the two most popular biofuels used as sub-stitutes for regular gasoline and diesel fuel (Clerici and Alimonti, 2015). As already mentioned the global demand for bio-fuels such as ethanol and biodiesel is increasing mainly for environmental reasons (Goswamia and Choudhuryb, 2019; Ajanovic, 2011). This is in line with the expansion of this market and the rapid increase in their production worldwide (Banse et al., 2008). Biofuels are perceived as an essential element in the development of fuel mar-kets (Ryan et al., 2006). In the transport sector, ethanol constitutes the most widely consumed liquid biofuel in the world (McPhail, 2011). It should be noted that the demand for biofuels is driven mainly by the transport sector (Fundira and Henley 2017). Brunschwig et al. (2012) as well as Balat (2011) indicated that biodiesel is an attractive alternative to diesel fuel.
Sivakumar et al. 2010 noted that with population growth, industrial development, and fossil fuel transportation costs soar-ing, it seems reasonable that countries seek for solutions independent from non-renewable fuels for climatic and economic reasons (Reboredo et al., 2016), thus drawing the attention of many stakeholders related to this issue, i.e. decision makers, representatives of the industry, and the scientific community (Timilsina et al., 2011). At the same time, the development of the biofuel market translates into a growing demand for the most important agricultural production factors (van Eijck et al., 2014). However, it should be taken into considera-tion that biofuels compete for renewable and non-renew-able resources, and therefore may affect their sustain-able growth and the market for agricultural products. Increased cultivation of biofuel crops will affect land utilization (Searchinger, 2007) which will have an impact on global natural resources and environmental sustain-ability (Zhang et al., 2009, Hausman et al., 2012), i.e. by generating indirect effects from their exploitation (van Noorden, 2013). Moreover, extending the cultivation area of biofuels with a simultaneous increase in population may lead to higher prices of agricultural raw materials on international markets. Thus, production of biofuels can pose challenges in terms of sustainable food produc-tion (Naylor et al., 2007). Moreover, in the case of bio-fuels, a crowding-out effect may appear (Vacha, 2013), redirecting food production to production of biofuel (Baffes, 2013). It should be emphasized that if part of the soil resources is occupied by the fields of energy crops, the potential for food production is weakened, which may result in an increase in food prices. Competition between energy crops and food crops has consequences such as rapidly rising food prices and a food deficit on a global scale (Gomiero, 2010, OECD-FAO). The prob-lem of competition between bioenergy crops and plants intended for consumption, resulting from land use, was also noted by Vasile et al. (2016) and Cai et al. (2010), Tomei and Heliwell (2016).
DOI: https://doi.org/10.36253/bae-9753
Read Full Text: https://oaj.fupress.net/index.php/bae/article/view/9753
