The effect of biofuel policies on feedstock market: Empirical evidence for rapeseed oil prices in EU

The growing expansion of biofuel production in the European Union is a direct consequence of the political framework specifically implemented to reduce the impact of oil price rises and to achieve fuel security and environmental goals. These policies have activated a new relationship between fossil fuel and vegetable oil prices. Combining a multiple structural change approach with rolling cointegration, the article identifies four structural breaks in the relationships between the price of mineral and vegetable oils. Results show that policy instruments are responsible for these structural changes in the long-run relationships between prices. The analysis also shows that from the implementation of the directive 2003/30/EC the price dynamic of rapeseed oil has shifted from its own market to the diesel market, making it subject to interactions with the more complex reality of mineral oil.

► Biodiesel represents the main biofuel currently used and produced within the EU.
► We study the effect of biofuel policy on price relationships of rapeseed oil and diesel.
► We explore the long run relationship allowing the presences of structural breaks.
► Results show that changes in the price dynamic are linked to biofuel policy.