A stochastic analysis of biofuel policies

The analysis is carried out using the GLOBIOM model, which is a global recursive dynamic partial equilibrium bottom-up model integrating the agricultural, bio-energy and forestry sectors with the aim to give policy advice on global issues concerning land use competition between the major land-based production sectors. In this paper, we extend the model to investigate the impact of stochasticity on decisions when there are different energy- and nutrition-related objectives. In particular, we investigate the implications of uncertain yields under different implementation schemes of bio-fuel targets and when food security is an explicit constraint. The source of stochasticity is the interannual crop yield variability, making it more risky to rely on average yields and thus requiring stochastic optimization techniques. More specifically, bio-fuel targets and increasing demand for food have been debated as two competing uses of land with potentially adverse effects for food security. In this paper we extend this debate to investigate whether beyond the negative effects on the agricultural commodity price level, bio-fuels exacerbate also the agricultural commodity price volatility, or whether they could serve as agricultural price stabiliser. We find that very tight annual targets contribute to higher rice volatility, while targets implemented in terms of contingents for would not have negative effects on the price volatility.
KEYWORDS: Bio-energy; Food security; Food price volatility; Optimization under uncertainty