by Chieh-Hsin Chen
Replacing imported fossil fuels with biofuel and other renewable energy sources has been one of the major research projects in developing countries like India with few fossil energy resources. Guntatilake et al. (2013) analyzed India’s biofuel production project with various scenarios and different perspectives, including India’s option for managing energy price risks in three ways: biofuel development, energy efficiency promotion, and food productivity improvements. The results suggest that introducing biodiesel, as transport fuel is a promising result in contrast to bioethanol. Combining biodiesel expansion with energy efficiency improvement and food productivity policies proved to be a more effective strategy to enhance both energy and food security.
Biofuel production is a solution to many energy depleting scenarios, but it conflicts with another essential commodity, food. With the booming global population, food and energy scarcity will soon become an issue; however, in many developing countries, where they produce most of the global food exports, energy shortage is much more overwhelming. With the shortage of energy, transportation of food products from rural areas might also become an issue. In this study, the authors use 5 different scenarios to analyze the benefits and weaknesses of various biofuel production policies. To initialize the analysis, the authors predicted the oil price would increase by 50 – 100% and utilized economic models to analyze the economic benefits of each scenario.
The five scenarios are: a reference case in which global oil prices increase by 50% from 2010 to 2030; scenario 1 with biodiesel subsidized 20%; scenario 2 with subsidies of 20% bioethanol; scenario 3 with at least 1% annual energy efficiency gains; and scenario 4 with 1% food productivity.
Scenario 1 compared to scenario 2 shows a significant improvement on energy price impact, with the implementation of biodiesel effectively influencing India at a in macroeconomic scale, because the production of biodiesel can take place in wastelands with almost zero opportunity cost. Furthermore, low skilled labor cost is very low in developing countries, thus the economic benefits are significant. By comparing scenario 2 and scenario 3, the authors show that there is no significant benefit of implementing sugarcane bioethanol. There is no improvement in social welfare: sugarcane is more valuable as sugar than energy in India.
In scenario 4, there are many advantages with implementing energy efficiency improvements. The most obvious advantage is the 18% reduction of GHG emission. Energy efficiency saved total expenditures for general households; with saving energy, and costs, the real wages or scenario 4 increased by 3.7% while the price of energy and other commodities stays the same. The employment rate also increased as the real wage increased. In scenario 5, a 1% food productivity growth shows a marvelous result in all aspects. The real gross domestic product (GDP) increased by 2.9%, the real wages increased by 7.9%, there was a decrease in food imports, and very little price inflation in both food and energy. The best situation is implementing biodiesel with energy efficiency improvements and food productivity growth.
Gunatilake, H, Roland-Holst, D, Sugiyarto, G. 2013. Energy security for India: Biofuels, energy efficiency and food productivity. Energy Policy 65, 761−767 http://bit.ly/1tYObGG