Impacts of US Biodiesel Mandates on World Vegetable Oil Markets

Abstract

In this paper we seek to understand the impact of expanded use of soybean oil biodiesel to address biofuel mandates on global vegetable oil markets, and in particular on the demand for palm oil. An open-economy equilibrium model is derived to investigate the market effects of biodiesel expansion on related energy and vegetable oil markets. The model is calibrated to represent the recent benchmark data in calendar year 2011. The simulation estimates suggest that the expanded use of soy oil for biodiesel in the US will have considerable impacts on world vegetable oils markets. The majority of the vegetable oil replacement is likely to occur through substitution of palm oil under a wide range of plausible elasticity values on the demand for vegetable oil and the demand substitution between soy oils and palm oils.

Keywords: biofuel policies, diesel taxes, mandates, renewable fuel standard

JEL Classification: F1, H2, Q2