David J Zilberman

Review of Environmental, Economic and Policy Aspects of Biofuels

The world is witnessing a sudden growth in production of biofuels, especially those suited for replacing oil like ethanol and biodiesel. This paper synthesizes what the environmental, economic, and policy literature predicts about the possible effects of these types of biofuels. Another motivation is to identify gaps in understanding and recommend areas for future work. The analysis finds three key conclusions. First, the current generation of biofuels, which is derived from food crops, is intensive in land, water, energy, and chemical inputs. Second, the environmental literature is dominated by a discussion of net carbon offset and net energy gain, while indicators relating to impact on human health, soil quality, biodiversity, water depletion, etc., have received much less attention. Third, there is a fast expanding economic and policy literature that analyzes the various effects of biofuels from both micro and macro perspectives, but there are several gaps. A bewildering array of policies - including energy, transportation, agricultural, trade, and environmental policies - is influencing the evolution of biofuels. But the policies and the level of subsidies do not reflect the marginal impact on welfare or the environment. In summary, all biofuels are not created equal. They exhibit considerable spatial and temporal heterogeneity in production. The impact of biofuels will also be heterogeneous, creating winners and losers. The findings of the paper suggest the importance of the role biomass plays in rural areas of developing countries. Furthermore, the use of biomass for producing fuel for cars can affect access to energy and fodder and not just access to food.

Time-Frequency Dynamics of Biofuels-Fuels-Food System

For the first time, we apply the wavelet coherence methodology on biofuels (ethanol and biodiesel) and a wide range of related commodities (gasoline, diesel, crude oil, corn, wheat, soybeans, sugarcane and rapeseed oil). This way, we are able to investigate dynamics of correlations in time and across scales (frequencies) with a model-free approach. We show that correlations indeed vary in time and across frequencies. We find two highly correlated pairs which are strongly connected at low frequencies – ethanol with corn and biodiesel with German diesel – during almost the whole analyzed period (2003–2011). Structure of correlations remarkably changes during the food crisis — higher frequencies become important for both mentioned pairs. This implies that during stable periods, ethanol is correlated with corn and biodiesel is correlated with German diesel mainly at low frequencies so that they follow a common long-term trend. However, in the crisis periods, ethanol (biodiesel) is led by corn (German diesel) even at high frequencies (low scales), which implies that the biofuels prices react more rapidly to the changes in their producing factors.

Public-Private Sector Linkages in Research and Development: The Case of U.S. Agriculture

The Bayh-Dole Act of 1980 gave U.S. universities and researchers property rights to innovations funded by federal money.This act led many universities to create Offices of Technology Transfer (OTTs) to assess innovations.The role of the OTT in the development of agricultural biotechnologies is evaluated.The five stages of the innovation process (research, development, product testing, production, and marketing) are discussed and evaluated in agricultural terms. The OTTs process of bringing innovations to the private sector (by soliciting and evaluating innovations, selling intellectual property rights, and monitoring and enforcing contracts) is explained, discussing this process in the agricultural field and discussing new roles of OTTs.Alternative institutional setups for conducting the innovation process are presented. Although OTTs provide a new link between universities and the commercial sector, traditional links, such as extension offices, should also be maintained, and the value of public research not leading to patents or royalties should not be overlooked. (AKP)

Co-Movements of Ethanol Related Prices: Evidence from Brazil and the USA

We use the wavelet coherence methodology to investigate relations between prices of ethanol and its feedstocks. Our continuous wavelet framework allows for discovering price connections and their evolution in both time and frequency domain in the most important ethanol markets – Brazil and the USA. For both of these markets we show that the long-run relationship between prices of ethanol and corn (in USA) or sugar (in Brazil) is positive, strong and stable in time. Importantly, we show that the prices of feedstock lead the prices of ethanol and not the other way around. The price lead of feedstock is documented for both short and long run horizons. Our qualitative results hold true even when the influence of crude oil prices is accounted for by utilizing partial wavelet coherence approach.

Correlations between Biofuels and Related Commodities: A Taxonomy Perspective

In this paper, we analyze the relationships between the prices of biodiesel, ethanol and related fuels and agricultural commodities with a use of minimal spanning trees and hierarchical trees. We find that in short-term, both ethanol and biodiesel are very weakly connected with the other commodities. In medium-term, the biofuels network becomes more structured. The system splits into two well separated branches - a fuels part and a food part. Biodiesel tends to the fuels branch and ethanol to the food branch. When the periods before and after the food crisis of 2007/2008 are compared, the connections are much stronger for the post-crisis period. This is the first application of this methodology on the biofuels systems.

Food Versus Fuel: An Updated and Expanded Evidence

This paper replicates and extends the study of Zhang et al. (2010): “Food versus fuel: What do prices tell us?�? Energy Policy 38, pp. 445-451. We confirm the findings of the original paper that there was only a weak relationship between ethanol and food commodities in the period between March 1989 and July 2008. In addition, we extend that study and examine the cointegration relationship between biofuels and related commodities for a considerably enlarged dataset (3 vs. 1 market, 26 vs. 8 commodities, analysis up till 2017 vs. 2008, weekly vs. monthly data frequency). Focusing on the biofuel markets of Brazil, the EU and the USA in the three separate periods before, during, and after the food crisis of 2007 and 2008, we show that studying the time variation of the relationships plays an essential role in their proper understanding. Our results help to clarify the wide extensive discussion about the role of biofuels prices in food shortages manifested particularly during the food crises. In agreement with the original study, we confirm that price series data do not support strong statements about biofuels uniformly serving as main leading source of high food prices and consequently the food shortages.

Foods, Fuels or Finances: Which Prices Matter for Biofuels?

We show that three factors combine to explain the mean excess sensitivity reported in studies estimating consumption Euler equations: the use of macro data, publication bias, and liquidity constraints. When micro data are used, publication bias is corrected for, and the households under examination do not face liquidity constraints, the literature implies no evidence for the excess sensitivity of consumption to income. Hence little remains for pure rule-of-thumb behavior. The results hold when we control for 45 additional variables reflecting the methods employed by researchers and use Bayesian model averaging to account for model uncertainty. The estimates of excess sensitivity are also systematically affected by the order of approximation of the Euler equation, the treatment of non-separability between consumption and leisure, and the choice of proxy for consumption.

Water Distribution and Market Power

Billions of dollars will be spent globally to upgrade water infrastructure in the coming years. The standard economic prescription is privatization and the introduction of water markets. A major lesson from the recent privatization debacle in electricity is that prescriptions for reform must include recognition of the technology for generation, distribution, and end-use. We apply this approach for water by comparing alternative institutions that have market power in each of these micro-markets with benchmark cases - social planning and a business-as-usual regime. An illustration shows that the business-as-usual regime with market failure may be preferred to a water distribution monopoly, while both may be dominated by monopoly power in the input or output markets. However, if the policy goal is to maximize the size of the grid, the distribution monopoly does best.