Impacts of Biofuels Policies in the EU

Biofuels have the potential of playing an important role in the renewable energy sources panorama, ensuring the achievement of multiple goals such as security of supply, reduction of greenhouse gas (GHG) emissions, creation of green jobs, and development of business opportunities in the agricultural and rural sectors. Subsidies to the sector were justified on this basis, but analysis is required to determine real impacts. However, other potential impacts could offset any benefits biofuels may bring, and careful assessment and analysis of biofuels' impacts are necessary. These possible consequences involve food prices and food security, economic distortions of subsidies, and environmental impacts. Among the methodologies used to evaluate biofuels impacts, general equilibrium models (CGE) can be considered as the most comprehensive tool available to analyze governmental intervention at the aggregate level. The use of these tools is primarily to generate projections of future performance of the market (in terms of production, consumption, prices, international trade) on the basis of alternative scenarios. The present paper applies a general equilibrium model, an extended version of the GTAP (Global Trade Analysis Project) model developed by Hertel, Tyner and Birur in 2010, in which an alternative closure has been adopted in order to analyze the combined impacts of the US and EU biofuels programs considering in particular the socio-economic effects on prices, employment and welfare in the European Union in 2015.