Supply and demand of biofuels in the fuel market of Thailand: Two stage least square and three least square approaches

In recent years, Thailand Government has made ambitious targets for biofuels and the demand for biofuels has increased. This study estimates the long-term factors that affect the supply and demand for biofuels (bioethanol and biodiesel) in Thailand by developing a theoretical model based on simultaneous equations, using Two stage least square and Three stage least square approaches. Quarterly data were collected for the years 2007-2013:2. Amongst many factors, we found three major factors affecting the long-term demand for biofuels: the price of biofuels, the real gross domestic product and the number of vehicles. On the other hand, the long-run supply of biodiesel and bioethanol was influenced by the gross domestic product, the cost of substitution using biofuel (i.e., price of gasoline 95 compared to blended gasoline) and the price of biodiesel. These findings have important policy implications to the government plans for biofuel development, suggesting that maintaining the price difference between gasoline and gasohol (blended gasoline) and a greater penetration of biofuel vehicles in fleet would be important policies for biofuel consumption. On biofuel supply side, results indicate that policies to compensate the biofuel producers for prices and reducing cost of bio-fuel production are important.