Cross-price elasticities for oils and fats in the U.S. and the EU
How rapeseed and soy biodiesel drive oil palm expansion
The role of food-based biofuels in climate mitigation policies such has long been controversial due to their impact on food prices and land use. Even when biofuel feedstocks are grown on existing cropland, diverting those commodities from other uses raises their global prices and incentivizes cropland expansion elsewhere in the world – this is known as indirect land use change (ILUC). ILUC is especially worrisome when it involves palm oil, because palm expansion is associated with very high CO2 emissions from tropical deforestation and the degradation of peat soils.
It is clear that palm biodiesel is linked to expansion of oil palm plantations, and there is also mounting evidence that demand for other types of biodiesel, including soybean and rapeseed, drives increased demand for palm oil as well. A new econometric study (Santeramo, 2017) adds to this body of evidence. Santeramo (2017) finds that increases in the price of soybean oil in the U.S. drives increased imports of palm oil into the U.S., and similarly that increases in rapeseed oil price in the EU lead to increased palm oil imports to that region. The likely reason this happens is that diverting soybean and rapeseed oil away from food, oleochemicals, and other uses leads to the increased use of another material to replace it. Palm oil is generally one of the least expensive oils available, and so is a natural substitute.
These findings change our understanding of the environmental benefits of policies supporting biodiesel in the U.S. and EU. Vegetable oil substitution is an important contributor to the lifecycle greenhouse gas impact of biodiesel pathways and should be fully considered in policy decisions.