Biofuels and their by-products: Global economic and environmental implications

Recently a number of papers have used general equilibrium models to study the economy-wide and environmental consequences of the first generation of biofuels (FGB). In this paper, we argue that nearly all of these studies have overstated the impacts of FGB on global agricultural and land markets due to the fact that they have ignored the role of biofuel by-products. Feed by-products of FGB, such as dried distillers grains with solubles (DDGS) and oilseed meals (VOBP), are used in the livestock industry as protein and energy sources. Their presence mitigates the price impacts of biofuel production. More importantly, they reduce the demand for cropland and moderate the indirect land use consequences of FGB.This paper explicitly introduces DDGS and VOBP into a global computational general equilibrium (CGE) model, developed at the Center for Global Trade Analysis at Purdue University, to examine the economic and environmental impacts of regional and international mandate policies designed to stimulate bioenergy production and use. We show that models with and without by-products reveal different portraits of the economic impacts of the US and EU biofuel mandates for the world economy in 2015. While both models demonstrate significant changes in the agricultural production pattern across the world, the model with by-products shows smaller changes in the production of cereal grains and larger changes for oilseeds products in the US and EU, and the reverse for Brazil. Models that omit by-products are found to overstate cropland conversion from US and EU mandates by about 27%.