Bio Fuels: A Case Study

1.1 BACKROUND AND MOTIVATION

The world experiences many challenges which are related to food shortages, energy insecurity, climate change and environmental deterioration. To combat these challenges certain policies and measures are put in place. In the last four decades one of the challenges has been the fuel crisis. The first fuel crisis was in the early 1970’s which saw a rise in global crude oil prices reaching unprecedented levels. Another fuel crisis initiated from the year 2007 with crude oil prices increasing drastically, doubling in those two years, but recovered in 2009 when prices decreased. Towards the end of 2009 crude oil prices regained momentum reaching high levels again in 2011. Only at the end of 2014 did crude oil prices

Biofuels can be produced anywhere in the world, which means that it has the potential to reduce dependence of oil importing countries from Organization of the Petroleum Exporting Countries (OPEC). Biofuels have been supported from the early 1970’s after the first oil crisis, however production initiated in the 1990’s with a very modest growth and volume, it only reached significant levels approximately in 2000 (FAO 2013). Demand and use has mostly been promoted and driven by government policies that stimulate the use of biofuels such as mandates, tax credit subsidies and import tariffs especially in industrialised countries (Pokrivcak & Rajcaniova, 2011; Bracco, 2014). The rational of governance policies includes improving energy security due to the high crude oil prices, and to diversify the energy sources so to be less dependent on oil imports (Kristoufek et al., 2012). The increased interest and awareness in global climate change and environmental problems have also added to the expansion of biofuels (von Braun and Pachauri 2006). The arguments are that implementing Renewable Energy Resources (RES) keep total energy demand sustainable and

These conditions lead to global food crises in 2008 and an even stronger one in 2011. The food crises was a sharp increase in food prices, resulting in millions of people into hunger and generating uprisings and protests in many developing areas (Bracco, 2014). The developments are illustrated in figure 1. Dramatic increases in the price of food commodities have been identified. An upward trend initiated from the year 2003/2004, which was after the period in which biofuel production was identified as significant. As oil prices increased tremendously during the second fuel crisis in 2008, food prices following the same pattern. An increase in volatility has also been observed from the year 2006 with food commodity prices correlating more with oil prices in recent years than before (FAO 2013). The level of correlation between crude oil and food prices has continued until 2014. During periods of high oil prices, food prices seemed to have been led by fuel prices as during the fuel crisis in 2008 and 2011 the price of crude oil was slightly higher than the food prices. According to Baier et al. (2009) the acceleration in food prices has mostly been led by agricultural raw materials such as cereals and oilseeds, of which are food crops used in the production of