The food v. fuel debate: A nuanced view of incentive structures

The rapid rise in crude oil prices and the geo-political uncertainty associated with ensuring uninterrupted supplies have compelled researchers, economists and politicians to look for indigenous substitutes. Liquid biofuels – ethanol and biodiesel – are widely recognized, technically feasible alternatives. Even as the jury is out to determine the environmental footprint of biofuels, the surrounding frenzy has often led to the announcement of unsustainable support prices for feedstock and unviable procurement prices for the finished product. This paper makes a detailed assessment of incentive structures facing the agriculturists, refiners and the consumers. Data from the Indian market are employed to illustrate.