The Impact of Oil Prices on Bioenergy, Emissions and Land Use

Abstract

We evaluate how alternative future oil prices will influence the penetration of biofuels, energy production, greenhouse gas (GHG) emissions, land use and other outcomes. Our analysis employs a global economy wide model and simulates alternative oil prices out to 2050 with and without a price on GHG emissions. In one case considered, based on estimates of available resources, technological progress and energy demand, the reference oil price rises to $124 by 2050. Other cases separately consider constant reference oil prices of $50, $75 and $100, which are targeted by adjusting the quantity of oil resources. In our simulations, higher oil prices lead to more biofuel production, more land being used for bioenergy crops, and fewer GHG emissions. Reducing oil resources to simulate higher oil prices has a strong income effect, so decreased food demand under higher oil prices results in an increase in land allocated to natural forests. We also find that introducing a carbon price reduces the differences in oil use and GHG emissions across oil price cases. Keyword: Biofuels; Deforestation; Greenhouse gas emissions; Climate policy