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Discussion or working paper

The economic effects of the EU biofuel target

  • Abstract

    In this paper we use the CGE model DART to assess the economic impacts and optimality of the different aspects of the EU climate package. A special focus is placed on the 10% biofuel target in the EU. In particular we analyze the development in the biofuel sectors, the effects on agricultural production and prices and finally overall welfare implications. The main findings include that the EU emission targets alone only lead to minor increases in biofuel production. Additional subsidies are necessary to reach the 10% biofuel target. This in turn increases European agricultural prices by up to 7%. Additional welfare losses compared to a cost-effective scenario where the EU 20% emission reduction target is reached occur due to separated carbon markets and the renewable quotas. The biofuel target has relatively small negative or even positive welfare effects in some scenarios.
  • Keywords

    CGE model, climate policy, EU, biofuels
  • JEL classification

    D58, Q48, Q54
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