Biofuel sustainability: Review of implications for land use and food price

Abstract

This article reviews the main findings, obtained from the literature, on two aspects that question first generation biofuel sustainability: the consequences of increased biofuel production on indirect land use change (ILUC) and related emissions and the impact of biodiesel on food-commodities prices.The measurement of ILUC, although necessary, is currently highly uncertain as demonstrated by the wide variation in estimates; in any case it seems that none of the first generation biofuels will be able to fulfill the sustainability criteria imposed by the RE Directive.Regarding the food-fuel debate, even if discrepancies in results have been observed, this review suggests that changes in biofuel prices have little impact on food prices. On the other hand, the impact of an increasing production of biofuel on food prices is not negligible.

Full text

Rivista di Economia Agraria, Anno LXX, n. 1, 2015: 7-31
© Firenze University Press
www.fupress.com/rea
DOI: 10.13128/REA-16975
ISSN (print): 0035-6190
ISSN (online): 2281-1559
1. Introduction
Industrialized countries’ dependence on fossil fuels has been distressing
for a long time for countries that do not have self-sufficiency, whether for en-
vironmental, economic, geopolitical or other reasons. The burning of fossil fu-
els contributes to greenhouse gas emissions increasing the risk of intensifying
climatic disturbances that can deteriorate the processes of production, con-
sumption and welfare in the world (Shikida et al., 2014). Therefore, the devel-
opment of renewable energy sources (including biofuels) could provide a valid
alternative to fossil fuels (Jaeger and Egelkraut, 2011).
Biofuel have become a high priority issue in the European Union as well
as in many other Countries around the world, due to concerns regarding oil
dependence and an interest in reducing CO2 emissions. Nowadays, worldwide
biofuels markets are dominated by ethanol (79%) and biodiesel (21%) (REN,
2013; Finco, 2012).
However, several authors (De Fraiture, 2008; Campbell and Doswald, 2009;
Demirbas, 2009; Diaz- Chavez, 2011; Ajanovic, 2011; Finco et al., 2012; Padella
et al., 2012) have recently raised concerns about the environmental benefits
and social-economic implications of biofuel production such as underlying
Deborah Bentivoglio,
Michele Rasetti
Department of Agricultural, Food
and Environmental Sciences,
University Politecnica Marche,
Monte Dago, Ancona, Italy
Keywords: Biofuels, Sustainability,
Literature review, Land use,
Commodities Price, GHG
emissions.
JEL Codes: Q01, Q16, Q42
Biofuel sustainability:
review of implications for land
use and food price
This article reviews the main findings, obtained from the
literature, on two aspects that question first generation
biofuel sustainability: the consequences of increased bio-
fuel production on indirect land use change (ILUC) and
related emissions and the impact of biodiesel on food-
commodities prices.
The measurement of ILUC, although necessary, is cur-
rently highly uncertain as demonstrated by the wide var-
iation in estimates; in any case it seems that none of the
first generation biofuels will be able to fulfill the sustain-
ability criteria imposed by the RE Directive.
Regarding the food-fuel debate, even if discrepancies
in results have been observed, this review suggests that
changes in biofuel prices have little impact on food pric-
es. On the other hand, the impact of an increasing pro-
duction of biofuel on food prices is not negligible.

8 D. Bentivoglio, M. Rasetti
uncertainties over the life cycle emissions of greenhouse gas emissions (GHG),
possible deforestation for feedstock production, degradation of soil and air
quality, increased water consumption, possible loss of biodiversity, possible
competition with food production, and other potential social imbalances
(Gnansounou, 2011).
In order to be sustainable, biofuels should be carbon neutral, especially
considering the necessity of fossil fuel substitution and global warming miti-
gation. In addition, biofuels should contribute to the economic development
and equity. Moreover, they should not affect the quality, quantity, and use of
natural resources as water and soil, not to affect biodiversity and not have un-
desirable social consequences (Lora et al., 2011).
Nevertheless, the length and complexity of biofuel supply chains make the
sustainability issue very challenging. Biofuel’ pathways include several succes-
sive segments over the fuels’ life cycle (e.g. feedstock production, conversion of
the feedstock to biofuels, wholesale trade, retail, and use in engines) and mul-
tiple actors (e.g. feedstock suppliers, biofuel producers, biofuel consumers, and
public authorities).
Land-use change is considered one of the most important environmental
impacts to address, mainly because of its impacts on GHG and wider ecosys-
tems. Careful assessment of these impacts has given rise to criticisms from
economists, ecologists, NGOs, and international organizations, who call for
additional analysis of biofuels’ effects. Furthermore, the European Union and
several countries have adopted certification scheme for biofuels to respond to
these growing concerns and to address the sustainability issues derived from
the expanding production of biofuels.
At the same time, the impact of biofuels on food prices has been fiercely
debated principally in the light of the agricultural commodity price spikes in
2007/2008 and again more recently in 2010/2011. This is because most of the
feedstocks currently used to produce biofuels, such as oilseeds in Europe, are
also important globally traded food commodities.
This work summarizes the main findings of different lines of research on
these two aspects that put at risk first generation biofuels sustainability. Two
bodies of literature are revised: one on the consequences of increased biofu-
el production on land use change and another on the impact of biodiesel on
food-commodities prices.
2. Impact of biofuel on land use change
Reducing the greenhouse gas emissions of the transport sector, particu-
larly road transport, is one of the major challenges for policy makers when it

Biofuel sustainability: review of implications for land use and food price 9
comes to tackling climate change. With liquid fuels likely to remain the pri-
mary energy source for road transport for at least the next few decades, bio-
fuels have been widely accepted for years as one of the potential solutions for
lowering the greenhouse gas emissions of transport (Ernst & Young, 2011). In
other words, there was general agreement that production and consumption of
biofuels could entail emission savings compared to conventional fuels. This is
because the crops used to make the fuels absorb carbon dioxide (CO2) as they
grow. The gas is later released when the biofuels are used.
However, using plant carbon is not free because it means the carbon, or
the ability of land to support photosynthesis of other plants, cannot be used
for other purposes. Sometimes that means a direct loss of carbon sequestra-
tion. Sometimes it means the diversion of carbon in crops from serving their
typical purposes as food or feed. It is necessary to calculate both direct and
indirect land use change to determine if there is in fact a net gain to diverting
plants or the land that produces them to biofuels (Edwards et al., 2010).
It is necessary to clarify the difference between direct and indirect land
use changes and understand their consequences. They are defined as follows:
• Direct Land Use Change:
when demand for biofuels increases, farmers
will have an incentive to meet this demand by producing more feedstock
for biofuels production. This increase in production of feed- and food-
stock can either be met by increasing the yield (output) of existing crop-
land (yield intensification), or increasing cropland area by cultivating
previously uncultivated land. The higher the carbon stock of the specif-
ic vegetation the more carbon will be emitted into the atmosphere from
cropland expansion. The release of carbon from expanding cropland for
biofuel feedstock production in natural lands (due to burning or micro-
bial decomposition of organic carbon stored in plants and soil) is known
as the direct land-use change effect. It is theoretically possible to observe
direct land-use change. This is done e.g. by keeping track of the land-use
before potential cropland expansion. Since it is possible to observe the
effect it is also possible to regulate. For example, in order for a specific
biofuel to be sustainable, in the terminology of the EU Renewable Energy
Directive, it must not be grown in an area, which used to contain high
carbon stock.
• Indirect Land Use Change:
when feedstock used for biofuels is produced
on existing cropland there are no direct land use change effects. However,
since agriculture production is displaced, the price of the displaced prod-
ucts will increase. Due to the relatively high substitutability between ag-
ricultural products the global food price will increase in response to the
reduced supply. In turn, the increase in food prices creates an incentive to
expand cropland for agricultural production. The release of carbon from

10 D. Bentivoglio, M. Rasetti
expanding cropland for production of displaced agriculture products,
known as the indirect land-use change effect, could negate the carbon ben-
efits associated with biofuel programs and affect the biodiversity, the soil
quality, and the natural resources in a certain region (Perimenis et al.,
2011; Copenhagen Economics, 2011). In other words, indirect effects are
mainly market related effects; changing market prices of different products
is the link between biofuel promotion and indirect effects (Delzeit et al.,
2011; Zilberman et al., 2010).
These aspects were taken into account for the first time in two studies
published in 2008 (Searchinger et al., 2008; Fargione et al., 2008) which af-
fected the good reputation of first generation biofuels. Using economic mod-
els they found that large scale biofuel production induced by current policies,
in addition to the emissions accounted for in the production of feedstocks up
to tailpipe emissions, are also responsible for other adverse impacts linked to
changes in the use of land due to feedstock production (Di Lucia et al., 2012).
When these LUC emissions are taken into account, the GHG mitigation ben-
efits of biofuels could be eroded or even negated and hence biofuels may create
a “carbon debt” with a long payback period (Khanna et al., 2011; Zezza, 2011).
These concerns on the negative consequences of dLUC and especial-
ly ILUC on GHG emissions, had impact on policymaking. Within the EU,
in 2009 the Renewable Energy Directive (RED) and Fuel Quality Directive
(FQD) were introduced with a set of sustainability criteria for biofuels and
bioliquids used to achieve the Directive targets (Alhgren et al., 2014). In par-
ticular, the RE Directive established that the GHG emission reduction from
the use of biofuels compared to the use of fossil fuel shall be at least 35% for
current biofuels and at least 50% from 1 January 2017 onwards (Art. 17(2)).
From 1 January 2018, the emission reduction shall be at least 60% for biofuels
produced in installations in which the production started on or after 1 Janu-
ary 2017. According to the RED, the value of carbon content for fossil fuel to
consider in the comparison should be 83.8 gCO2eq/MJ1. If we consider, for ex-
ample, the current 35% level this means that a biofuel is not allowed to exceed
~54.5 gCO2eq/MJ emission in the whole production process. The EC has only
determined standardized default values for direct emission produced during
the whole production process (cultivation, processing, transport and distribu-
tion) which represent a conservative estimate of the actual values. Neverthe-
less, for the sake of the comparison with fossil fuels, in addition to these emis-
sions, the ones coming from land use change must be taken into account.
1 Other studies argue that this value is too low and instead a value of 90.3 gCO2eq/MJ
should be taken into account (Laborde, 2011).

Biofuel sustainability: review of implications for land use and food price 11
At that time though, the LUC science was in its infancy (Finkbeiner, 2013),
so that the RE Directive reports as following:
The Commission should develop a concrete methodology to minimize greenhouse
gas emissions caused by indirect land-use changes. To this end, the Commission
should analyze, on the basis of best available scientific evidence, in particular, the
inclusion of a factor for indirect land-use changes in the calculation of greenhouse
gas emissions and the need to incentivize sustainable biofuels which minimize the
impacts of land-use change and improve biofuels sustainability with respect to indi-
rect land-use change.
As a result, a large number of studies, using various economic models,
were commissioned by the EC itself and other stakeholders, initially to mea-
sure the implications in terms of price trends (and their contribution to food
crises) and subsequently to investigate the possible range of ILUC “coeffi-
cients” (or factors) linked to first generation biofuels production (Dunkelberg
et al., 2012; Gohin, 2013). These coefficients are generally stated in grams of
CO2 equivalent per Megajoule of biofuel (gCO2e/MJ). The EU uses a 20-year
period to sum the emissions due to land conversion, and also biofuel produc-
tion on the converted land. The emissions have to be estimated over an ex-
tended period because some emissions are released slowly, while other emis-
sions are released more quickly (Darlington et al., 2013).
In 2012, the Commission released a proposal of Directive (COM 595,
2012) with the aim of improving the reporting of greenhouse gas emissions
by obliging Member States and fuel suppliers to report the estimated indi-
rect land-use change emissions of biofuels as a complement to the reduction
of the usual life cycle assessment (LCA) of different biofuels pathways (Ber-
nesson et al., 2004; Mortimer and Elsayed, 2006; Hansson et al., 2007; Zah
et al., 2007; Halleux et al., 2008; Stephenson et al., 2008; Lechon et al., 2009;
Thamsiriroj and Murphy, 2009; Herrmann et al., 2012; Nanaki and Koro-
neos, 2012; Gonzalez-Garcia et al., 2013; Malca et al., 2014; Rasetti et al.,
2014). The Commission introduced ILUC factors relying on the results of a
study of land use change emissions completed in 2011 by the International
Food Policy Institute (IFPRI) for the Directorate General for Trade of the
European Commission.
Therefore, total policy-estimated GHG emissions should be given by the
sum of the default values of direct emissions established in the RED and the
ILUC factors proposed by the COM 595 (Ahlgren et al., 2014), as shown in
Figure1.
From this Figure we can see that if the proposed values were to be introduced
into the EU policy to assess compliance with the minimum saving requirements,

12 D. Bentivoglio, M. Rasetti
none of the (first-generation) biodiesel fuels would be able to fulfil the 35%, let
alone the 50% and 60%, reduction requirement (Croezen et al., 2010; Ahlgren
et al., 2014). Hence, a specific ILUC factor of 55 g of CO2 per megajoule for oils
plants would mean the end for biodiesel, plant oil-based HVOs and also for the
not yet approved co-refining of plant oils in oil refineries (UFOP website2).
On the other hand, all types of ethanol fuels would be able to comply with
the 35% minimum reduction requirement (except for wheat ethanol produced
with a non specified process), whereas the 50% requirement will be difficult to
fulfil for all but sugar cane ethanol. Instead, none of the first generation bio-
ethanol fuels would be able to fulfill the 60% requirement.
However, many scientists questioned the validity of ILUC factors as effi-
cient indicators of ILUC emissions for different reasons.
First of all, most models are not able to distinguish between dLUC and
ILUC. This surprising statement also explicitly applies to the Laborde investi-
gation (Laborde, 2011), the one used by the Commission for the ILUC propos-
al. The models are only able to measure total LUC (i.e. dLUC + ILUC). Why
then we are talking about ILUC factor and not LUC factor? The reason is that
dLUC is expected to approach zero by 2020 and hence ILUC will probably oc-
2 <http://www.ufop.de/iluc-english/iluc-hypothesis/> (14/08/2014).
Figure 2: Review of modelled greenhouse gas (GHG) emissions due to indirect land use change
(ILUC) of biodiesel
Source: Ahlgren et al., 20141
1 Values recalculated to a 20-year allocation base. Lines = intervals; dots= specific values. E = economic modelling and
M = other modelling.
Source: Ahlgren et al., 2014 ( Values recalculated to a 20-year allocation base. Lines = inter-
vals; dots= specific values. E = economic modelling and M = other modelling).
Fig. 2. Review of modelled greenhouse gas (GHG) emissions due to indirect land use chan-
ge (ILUC) of biodiesel
Fig. 1. Biofuel policy-estimated emissions versus fossil fuel emissions1
0
20
40
60
80
100
120
140
sugar
beet
ethanol
wheat
ethanol
(process
fuel not
specified)
corn
ethanol
sugar
cane
ethanol
rapeseed
biodiesel
sunflower
biodiesel
soybean
biodiesel
palm oil
biodiesel
(process
not
specified)
gCO2eq/MJ
35% reduction 50% reduction 60% reduction
total emissions biofuels fossil fuel
1 There are different values of emissions for wheat ethanol in the RE Directive depending
on the type of production process considered; the lowest emission is obtained with straw
as process fuel in CHP plant (26 g of CO2/MJ).
Source: our processing of data from RED and COM 595.

Biofuel sustainability: review of implications for land use and food price 13
cupy a proportion of LUC so high to come very close to the (not very scientif-
ic) premise ILUC=LUC (Lahl, 2014).
Besides, the current ILUC estimations found in the existing literature are
subject to enormous variations, even after attempts to harmonize these models
(Edwards et al., 2010).
Many attempts to calculate ILUC emissions have been made over time and
in order to draw conclusions on the validity of this variable, many authors
tried to compare the results of different models available in the internation-
al literature (Copenhagen Economics, 2014; Croezen et al., 2010; DG Energy,
2010; Djomo and Ceulemans, 2012; Dunkelberg et al., 2011; Edwards et al.,
2010; Lahl, 2010; Ostwald and Henders, 2014; Prins et al., 2010; Berndes et al.,
2011; Dehue et al., 2011; Malins, 2012; Lahl, 2014; Warner et al., 2013; Wicke
et al., 2012; Di Lucia et al., 2012). Not all these reviews have the same level of
completeness and clarity.
none of the (first-generation) biodiesel fuels would be able to fulfil the 35%, let
alone the 50% and 60%, reduction requirement (Croezen et al., 2010; Ahlgren
et al., 2014). Hence, a specific ILUC factor of 55 g of CO2 per megajoule for oils
plants would mean the end for biodiesel, plant oil-based HVOs and also for the
not yet approved co-refining of plant oils in oil refineries (UFOP website2).
On the other hand, all types of ethanol fuels would be able to comply with
the 35% minimum reduction requirement (except for wheat ethanol produced
with a non specified process), whereas the 50% requirement will be difficult to
fulfil for all but sugar cane ethanol. Instead, none of the first generation bio-
ethanol fuels would be able to fulfill the 60% requirement.
However, many scientists questioned the validity of ILUC factors as effi-
cient indicators of ILUC emissions for different reasons.
First of all, most models are not able to distinguish between dLUC and
ILUC. This surprising statement also explicitly applies to the Laborde investi-
gation (Laborde, 2011), the one used by the Commission for the ILUC propos-
al. The models are only able to measure total LUC (i.e. dLUC + ILUC). Why
then we are talking about ILUC factor and not LUC factor? The reason is that
dLUC is expected to approach zero by 2020 and hence ILUC will probably oc-
2 <http://www.ufop.de/iluc-english/iluc-hypothesis/> (14/08/2014).
Figure 2: Review of modelled greenhouse gas (GHG) emissions due to indirect land use change
(ILUC) of biodiesel
Source: Ahlgren et al., 20141
1 Values recalculated to a 20-year allocation base. Lines = intervals; dots= specific values. E = economic modelling and
M = other modelling.
Source: Ahlgren et al., 2014 ( Values recalculated to a 20-year allocation base. Lines = inter-
vals; dots= specific values. E = economic modelling and M = other modelling).
Fig. 2. Review of modelled greenhouse gas (GHG) emissions due to indirect land use chan-
ge (ILUC) of biodiesel

14 D. Bentivoglio, M. Rasetti
The overview of LUC-related GHG emissions determined by different
studies proposed here and provided in Figure 2 for biodiesel fuels and in
Figure 3 for ethanol fuels, is based on the work of Ahlgren et al. (2014) since
it is one of the most recent and complete.
The review shows that within the selected sample of papers, most model-
ing was carried out for ethanol, especially with maize as feedstock and that
Figure 3: Review of modelled greenhouse gas (GHG) emissions due to indirect land use change
(ILUC) of ethanol biofuels
Source: Ahlgren et al., 20142
2 Values recalculated to a 20-year allocation base. Lines = intervals; dots= specific values. E = economic modelling and
M = other modelling.
Fig. 3. Review of modelled greenhouse gas (GHG) emissions due to indirect land use chan-
ge (ILUC) of ethanol biofuels
Source: Ahlgren et al., 2014 (Values recalculated to a 20-year allocation base. Lines = inter-
vals; dots= specific values. E = economic modelling and M = other modelling).

Biofuel sustainability: review of implications for land use and food price 15
most studies employed general or partial economic equilibrium models.
The first thing that becomes clear looking at the figures is that large ranges
in LUC-related GHG emissions are found within and across the different types
of models and for the different feedstock conversion routes (Wicke et al., 2012).
The largest variation in results was detected for wheat ethanol and soybean
biodiesel. However, over time there was some convergence of results, partic-
ularly regarding ethanol from maize, which has undergone much modeling
effort. Sugarcane and wheat showed similar patterns. In general, the values
reported for biodiesel fuels showed greater variation than those for ethanol
(Ahlgren et al., 2 014).
The ranges for the ILUC factors published are really enormous. Just the
ILUC factor of biofuels (notwithstanding their GHG values for agricultur-
al production, fuel production etc.) can be either some 200% below or some
1700% above the fossil fuels value. It can be positive or negative value. This
clearly indicates the absence of any scientific robustness for claiming a par-
ticular ILUC factor (Finkbeiner, 2013).
Variations in estimated GHG emissions from biofuel-induced LUC are
driven by the lack of a common modeling structure (different approaches and
models exist), the differences in scenarios assessed, the assumptions that were
made, distinct definitions (LUC), time horizon considered, disparities in data
availability and quality, accounting for the effects of by-products and so on
(Copenhagen Economics, 2011; Warner et al., 2013; De Rosa et al., 2014).
Therefore, comparing the results obtained from these studies is really a
difficult and risky task.
However, an interesting trend in the development of ILUC estimations
based on economic models over time has been observed. Even though the time
series is still short and all the uncertainties discussed above obviously apply
to this trend as well, it is striking that refined and improved models in newer
studies predict a lower ILUC impact compared to earlier esteems (Finkbeiner,
2013, De Rosa et al., 2014).
Despite the high variability of results presented above, it has been observed
that adding the direct emissions from the RE Directive to these modelling
ILUC results, we can draw conclusions, about compliance with the minimum
saving requirements, in many cases similar to those already observed for poli-
cy results (Fig. 1).
This is clear looking at Figure 4, which shows total biofuel emission values
on the base of a literature review made by Di Lucia et al. (2012) which consid-
ered the same studies presented above, with the exception of more recent re-
searches.
From this figure we can see that, according to many studies ethanol fuels
should be able to comply with the 35% minimum reduction requirement, where-

16 D. Bentivoglio, M. Rasetti
as the 50% requirement will be difficult to fulfill for all but sugar cane ethanol
(with a couple of results in favor to wheat ethanol too). Ethanol fuel results seem
to be, at a certain degree, in line with the policy values (Ahlgren et al., 2014).
In the case of biodiesel fuels, there is an even bigger variation of results
from the models; in some cases, the policy estimates are higher than the range
of values reported in the modeling exercises, in some other cases it is the con-
trary. In any case, it is quite safe to state that none of the biodiesel fuels would
be able to fulfill the GHG reduction requirements of the EU directive.
Fig. 4. Total biofuels and fossil fuels GHG emissions including RE Directive emission sav-
ings requirements
Figure 4: Total biofuels and fossil fuels GHG emissions including RE Directive emission savings
requirements
Source: Di Lucia et al., 2012
Source: Di Lucia et al., 2012.

Biofuel sustainability: review of implications for land use and food price 17
3. Impact of biofuels on food commodity price
The price boom that emerged in the mid-2000s has been especially marked
for agricultural commodity. In particular, the prices have been rather stable
until the end of 2006, while from 2007 to 2008, they more than doubled, de-
clining again in 2009, reaching the 2006 level. In the second semester of 2010,
the price registered again an increase followed by a slight fall in 2011. A vast
literature has emerged on the causes of this boom (The World Bank, 2008;
Ranswant et al., 2008; Sexton et al., 2008; Trostle, 2008Abbott and di Battis-
ti, 2009a; Balcombe, 2009; Sarris, 2009; Gilbert, 2010; Gilbert et al., 2010; De
Schutter, 2010; Jacks, 2010; Huchet-Bourdon, 2011; Muller et al., 2011; OECD-
FAO, 2011) some of which have been hotly debated as the role of speculation,
the increased energy prices, the export policy changes, the declining US dol-
lar, and especially, in the case of food commodities, the biofuels’ role.
In recent years, the role of biofuel in the determination of the high agricul-
tural commodity prices and in particular, the price linkages between the food,
energy and biofuel markets, have become one of the issues most widely de-
bated by energy, environmental and agricultural economists interested in the
question of the sustainable development of biofuels (Kristoufek et al., 2012a;
Schimmenti et al., 2012). The so-called «food crisis», which was characterized
by sharply increasing prices for agricultural commodities and crude oil as well
as for retail fuels and biofuels, captured a great deal of academic and political
attention during 2008 and this debate on food versus biofuel issues has contin-
ued in more recent years affecting policies (Vacha et al., 2012).
To date existing literature has fallen into two categories: one on the rela-
tionship between food commodity pricies and biofuel prices and another on
the impact of increased biofuel production/consumption on food commodity
prices. The first problem is investigated using the Time-series econometrics
methodology (Zilberman et al., 2012); the latter relies on the use of partial or
general equilibrium models (Serra and Zilbermann, 2013).
3.1 Impact of biofuel prices on food commodity price
Although a great number of studies and reports investigate the dynam-
ics of price level links between the commodity and biofuel sectors, current
research has mainly concentrated on the US and Brazilian ethanol markets,
while the European biodiesel market has not received much attention (Ben-
tivoglio et al., 2014). The biofuel-related price transmission literature has fo-
cused on studying price level links using cointegration analysis and VECM
(Vector Error Correction Model). More recently, price volatility interactions

18 D. Bentivoglio, M. Rasetti
have also been assessed by means of multivariate versions of ARCH (AutoRe-
gressive Conditional Heteroskedasticity) or GARCH (generalized autoregres-
sive conditional heteroskedasticity) models.
The link between EU biodiesel and agricultural commodity prices has
been examined by Busse et al. (2010 and 2012), Hassouneh et al. (2012), K ris-
toufek et al. (2012b) and Vacha et al. (2012).
Busse et al. (2010) investigated vertical price transmission in the biodies-
el supply chain during the rapid growth in German biodiesel demand from
2002 until its decline in 2009, by focusing on the connections between the
prices of rapeseed oil, soy oil, biodiesel and crude oil. They found evidence of
a strong impact of crude oil prices on biodiesel prices, and of biodiesel prices
on rapeseed oil prices. However, in both cases, the price adjustment behavior
was found to be regime-dependent. In a later paper, using a methodological
approach which includes a regime-dependent MS-VECM, Busse et al. (2012)
found evidence of cointegration between diesel and biodiesel prices, the latter
being the endogenous variable, as well as between biodiesel, soybean and rape-
seed prices, with the latter being the endogenous variable.
Hassouneh et al. (2012) studied the Spanish biodiesel industry. They found
not only that there is a long-run equilibrium relationship between biodiesel,
sunflower and crude oil prices but also that biodiesel is the only variable that
adjusts to deviations from the long-run relationship and that sunf lower oil
prices are influenced by energy prices through short-run price dynamics.
Kristoufek et al. (2012b) investigate the relationship between biodiesel, eth-
anol and related fuels and commodity prices in the US and Germany using
weekly, monthly and quarterly data. The analysis is based on minimal span-
ning and hierarchical trees. They find that biofuel is affected by food and fuel
prices. However, biofuel prices show a limited capacity to determine food pric-
es. The same authors also find out that the relationship between prices varies
according to the data frequency used.
Vac ha et al. (2012) analyzed the interconnections between ethanol and bio-
diesel systems and a wide range of related commodities, using wavelet coher-
ence analysis. They find biodiesel prices to be more connected to fuel prices
(German diesel), while ethanol is more related to food prices (corn).
Relatively to the Brasilian ethanol market and in particular the link be-
tween sugar and energy market, ethanol and crude oil/gasoline, was examined
by Rapsomanikis and Hallam (2006), Balcombe and Rapsomanikis (2008),
Serra et al. (2011b) and Serra (2011).
Rapsomanikis and Hallam (2006) and Balcombe and Rapsomanikis (2008)
use ethanol, sugar and crude oil prices to investigate the Brazilian ethanol in-
dustry. Both articles rely on generalized (non-linear) versions of error-correc-
tion models. While sugar–oil and ethanol–oil are found to be nonlinearly co-

Biofuel sustainability: review of implications for land use and food price 19
integrated, ethanol–sugar prices are linearly co-integrated. Both articles pro-
vide evidence that crude oil prices drive long-run feedstock price levels, while
the latter drive long-run biofuel prices. The Brazilian ethanol industry is not
found able to influence crude oil long-run price levels.
A study on Brazil by Serra et al. (2011b) used weekly international crude
oil and ethanol and sugar prices, observed from July 2000 to February 2008,
to assess volatility spillovers in Brazilian ethanol and related markets. They
found that the ethanol prices are positively related to both sugar and oil prices
in equilibrium. Markets transmit the volatility in the oil and sugar markets to
ethanol markets with minimal transfer of volatility in the other direction.
Another study on Brazil by Serra (2011) uses nonparametric correction to
time series estimations and supports the long-run linkage between ethanol
and sugarcane prices and finds that crude oil and sugarcane prices drive etha-
nol prices and not vice versa.
Relatively to the most recent time-series studies on US ethanol market,
Zhang et al. (2009) focus on volatility of ethanol and commodity prices us-
ing cointegration, VECM and mGARCH models. The authors analyze weekly
wholesale price series of the US ethanol, corn, soybean, gasoline and oil from
the last week of March 1989 through the first week of December 2007. They
find that there are no long-run relations among fuel (ethanol, oil and gasoline)
prices and agricultural commodity (corn and soybean) prices in recent years.
The same authors further analyze long‐ and short-run interactions with a use
of cointegration estimation and vector error corrections model with Granger-
type causality tests (Zhang et al., 2010). They examine corn, rice, soybeans,
sugar, and wheat prices along with prices of energy commodities such as etha-
nol, gasoline and oil from March 1989 through July 2008. They find no direct
long-run price relations between fuel and agricultural commodity prices, and
only limited if there are any direct short-run relationships.
Tyner (2010) finds that since 2006, the ethanol market has established a
link between crude oil and corn prices that did not exist historically. He finds
that the correlation between crude oil and corn prices was negative (−0.26)
from 1988 to 2005; in contrast, it reached a value of 0.80 during the 2006–
2008. However, only the price series are analyzed, which raises serious ques-
tions about stationarity of the data.
Serra et al. (2011a) uses autoregression analysis to identify the relation-
ship between corn, ethanol, gasoline, and oil prices in the United States, us-
ing monthly data from 1990–2008. They found that the four prices are related
in the long run through two cointegration relationships: one representing the
equilibrium within the ethanol industry and the other representing the equi-
librium in the oil-refining industry. The ethanol market provides a strong link
between corn and energy markets, and the price of ethanol increases as the

20 D. Bentivoglio, M. Rasetti
prices of both corn and gasoline increase, with the price of corn being the
dominant factor when it is relatively high. Thus, the corn biorefineries may
suffer losses when corn prices are high if the price of ethanol does not fully
adjust to the rise in the price of corn. Saghaian (2010) supports cointegration
between crude oil, ethanol, wheat, corn and soybean prices. Crude oil drives
corn, soybean, wheat and ethanol equilibrium prices, while ethanol affects
long-run corn prices.
Wixson and Katchova (2012) show on monthly US data from 1995 to 2010
that price of corn Granger-causes price of ethanol and that ethanol does not
Granger-causes wheat.
Qiu et al. (2012) using a structural VAR model, provide evidence that fossil
fuel and biofuel market shocks do not spill over grain prices.
Du and McPhail, 2012 conclude that ethanol, gasoline, and corn prices are
found to be more closely linked. Specifically, ethanol (corn) shocks have the
largest impact on corn (ethanol) price. The strengthened corn-ethanol relation
can be largely explained by the new developments of the biofuel industry and
related policy instruments.
All studies considered provide evidence of integration between the mar-
ket of fossil fuel, biofuels and related agricultural commodities. Nevertheless,
conclusions appear to be mixed and the results show that changes in biofuel
prices have limited impact on food prices.
3.2 Impact of biofuel production on food price and security
Rapid growth in biofuel production has the potential to affect food secu-
rity at both the national and household levels mainly through its impact on
food prices. Expenditures on food amount to a large part of the budget of the
poorest households, and so rising food prices threaten them with food insecu-
rity, which is the lack of secure access to enough safe and nutritious for nor-
mal growth and development and for an active, healthy life (Timilsina and
Shrestha, 2010).
One of the major forces through which the biofuel may contribute to the
increase of the food prices is the diversion of land use from food-crops pro-
duction to the production of biofuel feedstock (Janda et al., 2011). This phe-
nomenon takes place because increased demand of energy crops results in
higher prices; higher energy crops prices in turn provide greater incentives for
farmers to increase acreage. As more hectares are converted to the production
of energy crops, fewer hectares are available for food crops that compete for
the same land (Alexander and Hurt, 2007). Thus, the resulting scarcity of food
crops drives food price inflation.

Biofuel sustainability: review of implications for land use and food price 21
According to the reconstruction of von Witzke and Noleppa (2014), in the
year 2008 the World Bank tried to give an explanation to these agricultural
commodity price peaks and published a study in which more than 70% of the
price increase at that time was attributed to the growth in global biofuel produc-
tion (Mitchell, 2008). This study was harshly criticized for overestimating the
impact of growing global biofuel production on agricultural commodity prices.
Another study published by the World Bank two years later, stated that the
earlier study was likely to have overestimated the impact of biofuel produc-
tion on agricultural commodity prices (Baffes and Haniotis, 2010). They ar-
gued that worldwide, biofuels accounted for only 1.5 percent of the area under
grains/oilseeds and this raises serious doubts about claims that biofuels ac-
count for a big shift in global demand. Additionally, they reported that the ef-
fect of biofuels on food prices has not been as large as originally thought, but
the use of commodities by investment funds may have been partly responsible
for the 2007/08 spike.
An impact analysis, prepared by IPTS3 (Institute for Prospective Techno-
logical Studies)4 in 2008 shows that world market prices for biodiesel feed-
stocks are more sensitive to the EU’s biofuels policies. This is because ethanol
production is a relatively small component of total demand for the agricul-
tural commodities that also serve as ethanol feedstocks, whereas demand for
oilseeds and vegetable oils for biodiesel is a much larger component of total
world demand for biodiesel feedstocks. They conclude that any direct pres-
sure on global food markets due to EU biofuel policies will affect vegetable oils
rather than grains or sugar (Fonseca et al., 2010).
The OECD/FAO Outlook (2011) sustains that average crop prices over the
next ten years are projected to be above the levels of the decade prior to the
2007/08 peaks, in both nominal and real terms. For example, average wheat
and coarse grain prices are projected to be nearly 15-40% higher in real terms
relative to 1997-2006, while for vegetable oils real prices are expected to be
more than 40% higher.
Based on their review of 25 studies, Abbott et al. (2009b) identified three
broad sets of forces that drove up food prices in 2008: the global changes in pro-
duction and consumption of key commodities, the depreciation of the dollar,
and the growth in the production of biofuels. Even in their follow-up study after
the financial crisis, they found out that the key drivers of food prices remain the
same: crop supply and utilization, the exchange rate and world macroeconomic
factors, and the agricultural-energy linkage through the biofuel market.
3 Web site: <http://ipts.jrc.ec.europa.eu/>.
4 The study was prepared for DG Agriculture and Rural Development (DG Agri).

22 D. Bentivoglio, M. Rasetti
In their synthesis of several studies that assessed the impact of biofuel de-
velopment on food prices, Gerber et al. (2009) found that it is difficult to rec-
oncile the various calculations of the impacts of biofuel production on food
and commodity prices to-date. This is largely due to the intricate set of as-
sumptions, the differences in the baseline scenario, and the projection horizon
they are built upon. However, despite considerable differences in projection re-
sults, methodologies and assumptions, some common trends can be observed:
the latest EU and US biofuel programs are expected to raise prices of vegetable
oils the most, with smaller price increases for corn, wheat, and soybean; whilst
the price of oilseed meals is widely predicted to decline. They also conclude
that the future impact (i.e. beyond the short-term crisis) of the current bio-
fuel policies and inherent production trends on food bills should decrease and
2007/08 should be considered the peak of food price growth.
Ajanovic (2011) considers that the most important impact factors on feed-
stock prices are biofuel production, land use, yields, feedstock, and crude oil pric-
es. Ajanovic concludes that in the period 2000/2009, the increase, or better the
volatility, of commodities prices has not been the only consequence of continu-
ously increasing biofuel production, but by far the largest part of these volatilities
was caused by other impact parameters such as oil price and speculation.
Sexton et al., 2008 conclude that biofuels have a nontrivial impact on food
security. They argue that underinvestment in research and overregulation of
agricultural biotechnology led to a decline in productivity growth that is also
responsible for higher prices and must be reversed if global food and energy
security are to improve.
Most of the analysis reviewed in this section suggests that increased bio-
fuel production could potentially have a significant impact on food-commod-
ity price. However, although results vary, there is a broad agreement that the
price increases are due to several factors including but by no means restricted
to biofuels.
4. Conclusion
The sustainability of biofuels derived from agricultural biomass is widely
debated nowadays. On the one hand the production of biofuels should ensure
energy security for the historically non-oil producing countries, on the other
hand it turns on the food versus fuel debate and the land use chance issue,
generally responsible for a net loss in GHG emissions savings related to biofuel
production and consumption.
The overview of LUC-related GHG emissions determined by different
studies showed results with large variations within and across different types

Biofuel sustainability: review of implications for land use and food price 23
of models and for different feedstock conversion routes. The wide variation in
estimates suggests that the measurement of ILUC is highly uncertain (Khanna
et al., 2011). There is agreement in the scientific community that the uncer-
tainty of current ILUC factor is way beyond a level that is usually aimed for in
quantitative science. Hence, scientific results do not deliver the answer from
which policy makers easily can make policy options (Di Lucia et al., 2012).
There is a conflict between the demand from EU policymakers for exact,
highly specific values and the capacity of the current models to supply results
with that level of precision. As there is no consensus on ILUC predictions, it
is arguable that any choice of ILUC emission factors will, to a large extent, be
based on subjective decisions, even when objectivity is endeavored (Copenha-
gen Economics, 2014). This is why the European Commission attempt to im-
pose very specific ILUC factors, is clearly at odds with the uncertainty in re-
sults emerging from modelling exercises to date (Ahlgren et al., 2014). As a
consequence, using such uncertain ILUC factors as a basis for regulation could
weaken the credibility of EU biofuel policy (Copenhagen Economics, 2014).
Concern over competition between biofuels and food production has been
particularly acute, given the overwhelming use of food and feed crops for bio-
diesel production (HLPE, 2013). To date, the literature has been very wide-
ranging. According to Hochman et al. (2011) and Kristoufek et al. (2011), t he
relationship between fuels and agri-food commodity prices depends on the
market analysed (EU, US and Brazilian context), on the types of commodities,
on the specification of the model and on the time series data and observation
period (weekly, monthly or quarterly). Moreover, the dynamics of commod-
ity prices are complicated and different factor may be affecting these markets
(Nazlioglu et al., 2012).
The various calculations of the impacts of biofuel production on the mid-
term projections of food and agricultural commodity prices are difficult
to reconcile. This is largely due to the specific assumptions underlying each
model, the scope of the studies (national/international), their time horizon,
the choices of different policy scenarios, or even more simply the definition
of «food prices» and of aggregate commodity prices (Gerber et al., 2008). For
similar reasons, studies evaluating the impact of biofuel production on food
and commodity prices to date do not provide a clear consensus.
On the one hand, this review underlines that the time-series analysis link-
ing food and fuel prices shows that biofuel prices are increasing with both fu-
els and food prices, but it also shows that changes in biofuel prices have little
impact on food prices. On the other hand, the impact of an increasing pro-
duction of first generation biofuels on food prices is not negligible and varies
across crops and locations. For example, if biofuel crops are cultivated exclu-
sively on set-aside lands or marginal lands, with little competition with food

24 D. Bentivoglio, M. Rasetti
crops, the impacts on food prices can be theoretically minimal. But in reality
biofuels may still compete for other resources like water or labor and thus im-
pact food production (Rajagopal et al., 2007).
The main findings, that emerged from the literature review, have important
policy implications. In order to promote biofuels that deliver substantial GHG
savings (including ILUC emissions) and reduce competition with food crops,
the Commission developed a Proposal of Directive (COM 595, 2012) with the
aim of limiting the contribution of first generation biofuels towards attainment
of the targets in the RED in favor of 2nd and 3rd generation biofuels. However,
the effectiveness of this policy measure has been criticized since the production
of advanced biofuels is still not economically sustainable, so at the moment 1st
generation biofuels seem to be the most viable agro-industrial chain.
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