Phasing out palm and soy oil biodiesel in the EU: What is the benefit?
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Heimann, Tobias et al. Article — Published Version Phasing out palm and soy oil biodiesel in the EU: What is the benefit? GCB Bioenergy Provided in Cooperation with: Kiel Institute for the World Economy – Leibniz Center for Research on Global Economic Challenges Suggested Citation: Heimann, Tobias et al. (2024) : Phasing out palm and soy oil biodiesel in the EU: What is the benefit?, GCB Bioenergy, ISSN 1757-1707, Wiley, Hoboken, NJ, Vol. 16, Iss. 1, pp. 1-14, https://doi.org/10.1111/gcbb.13115 This Version is available at: https://hdl.handle.net/10419/281955 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/
GCB Bioenergy. 2023;16:e13115. | 1 of 14 https://doi.org/10.1111/gcbb.13115 wileyonlinelibrary.com/journal/gcbb 1 | INTRODUCTION Global biofuel production has experienced strong growth over the last decade (IEA,2013, 2017). This was largely driven by climate mitigation policies, especially in the European Union (EU) and the United States of America (USA). After aiming for a 10% share of biofuels in total transport fuels by 2020, as defined by the Renewable Received: 5 July 2023 | Revised: 29 September 2023 | Accepted: 2 October 2023 DOI: 10.1111/gcbb.13115 RESEARCH ARTICLE Phasing out palm and soy oil biodiesel in the EU: What is the benefit? TobiasHeimann1 | RobinArgueyrolles2 | ManuelReinhardt2 | FranziskaSchuenemann3 | MareikeSöder4 | RuthDelzeit2 This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited. © 2023 The Authors. GCB Bioenergy published by John Wiley & Sons Ltd. 1Kiel Institute for the World Economy, Kiel, Germany 2Department of Environmental Science, University of Basel, Basel, Switzerland 3Department of Bioeconomy, University of Hohenheim, Hohenheim, Germany 4Thünen Institute, Braunschweig, Germany Correspondence Tobias Heimann, Kiellinie 66, Kiel 24105, Germany. Email: [email protected] Funding information Bundesministerium für Bildung und Forschung, Grant/Award Number: 031B0230A and 031B0788A Abstract The Renewable Energy Directive (RED II) by the European Union (EU) provides an updated framework for the use of renewable energy in the EU transport sector until 2030, and bans the use of biofuels with a high risk of causing indirect landuse change in high carbon stock areas (high ILUC- risk criteria). The only biofuel feedstock affected by this criterion is palm oil. We employ the computable general equilibrium (CGE) model DARTBIO for a scenariobased policy analysis and evaluate a phaseout of palm oilbased biodiesel, and an additional phaseout of soy oilbased biodiesel in the EU. Our results show that the palm phaseout has only a relatively small impact on global palm fruit production and total crop land use in tropical and subtropical regions, while the soy phaseout leads to a comparable stronger decrease in global soy production, and a reduction in total cropland use in soyproducing regions. Both policies lead to increased oilseed production in the EU. Therefore, farmer in Malaysia and Indonesia face a significantly reduced income. While European farmers profit the most, EU firms and households are confronted with higher expenditures. Finally, this study indicates that unilateral demandside regulations for a single good in a single sector is not sufficient for effective environmental protection. Enhanced binding sustainability criteria and certification schemes for the use of all vegetable oils in every sector and industry as well as improved protection schemes for sensible forest areas are necessary. KEYWORDS biofuels, computable general equilibrium (CGE), land use, palm oil, renewable energy directive (RED II), soy oil
2 of 14 | HEIMANN etal. Energy Directive that came into force in 2009 (RED I) (European Union,2009), the EU has recast the directive for the period 2020–2030 (RED II) in 2018 to correct for tradeoffs with respect to food security and biodiversity caused by direct and indirect landuse change (European Union, 2018). The new legislation limits the share of biofuels and bioliquids produced from cereals and other starchrich crops, sugars and oilseeds counting towards the mandate promoting the use of nonfood crops for biofuel production. Moreover, the delegated regulation of the directive categorizes palm oilbased biodiesel as biofuel with a high risk of causing indirect landuse change (ILUC), and thus phases it out from the EU biofuel market from 2022 onwards to reach a zero subsidy by 2030 (high ILUC- risk criteria). In the scientific debate, the role of biofuel production in direct and indirect landuse change, and deforestation remains controversial (Arima etal.,2011; Broch etal.,2013; Klein Goldewijk etal.,2017; Zilberman,2017). Concerns about the potential negative effects of biofuel policies were already raised by Rosegrant etal.(2008) who estimated an increase in global demand for cropland. Hellmann and Verburg (2010) conclude that indirect landuse change effects of biofuel policies on biodiversity are greater than direct effects. Since then, various studies employed computable general equilibrium (CGE) and partial equilibrium (PE) models to estimate the global landuse effects of biofuel mandates (e.g. Calzadilla etal.,2016; Hertel & Beckman, 2011; Laborde, 2011; Laborde & Valin, 2012; Valin etal.,2015; Zhang etal.,2013). In this paper, we assess the implications of the high ILUC- risk classification of specific crops on agricultural markets and land use, by employing the global CGE model DARTBIO (Dynamic Applied Regional Trade- BIO model). The only crop being affected by high ILUC classification is palm fruit. The EU has claimed that the ban on palm oilbased biodiesel is necessary to avoid deforestation and ILUC. The argument implies that the restriction of palm oilbased biodiesel in the EU should lead to lower palm oil production to avoid additional landuse change. While European farmers, biofuel producers and environmental associations welcome the policy (COPA/COGECA,2018; EJF,2019; NABU,2019), palm fruitproducing countries criticize the regulation as a technical barrier to protect European oilseed producers (CPOPC,2020; MITI,2019; WTO,2019). Especially Malaysia and Indonesia (MAI) which supply about 85% of global palm oil production (FAO,2020) are strongly opposing the high ILUC- risk classification, which is currently subject to World Trade Organisation (WTO) disputes (WTO,2019). The regulation also appears controversial because other crops than palm fruit are not classified as high ILUC- risky, even though Brazilian soybean exports to Europe heavily contributed to deforestation (Rajão etal.,2020). Therefore, some European countries, such as Belgium, France and Italy, have already planned to ban soy oil from being used as biofuel feedstock as well (Brussels Times, 2021; Canopée, 2020; Legambiente, 2021). As a consequence, also the EU is rethinking their sustainability criteria for RED II (European Commission,2021), and political groups of the EU parliament handed in proposals to classify soy oil as high ILUC- risky (EURACTIV, 2022). Finally, in summer 2023, the EU has introduced the regulation on deforestationfree products (EUDR), according to which traders of several commodities including those based on palm fruit and soy will have to prove that these products are deforestation free (Regulation (EU) 2023/1115). The regulation will come into effect early 2025, but is not such a strict rule with respect to banning particular products from EU markets as the ILUC criteria in the RED II and again focuses on a limited number of commodities. The aim of our study is to analyse the effects of the EU firstly phasing out the use of palm oilbased biodiesel and secondly additionally phasing out soy oilbased biodiesel on agricultural markets and land use. As a result, we show whether the current high ILUC- risk classification can be considered an effective measure for the urgently required protection of valuable forests and wetlands. Moreover, we compare this to the effectiveness of the likely future scenario of classifying soybeans as high ILUC- risk feedstock as well. Only a few economywide studies (see below) specifically address the impact of the restriction on palm oilbased biofuels, and to the best of our knowledge, we are the first to model the phaseout of soy oilbased biodiesel in the EU. Philippidis et al. (2018) make use of the MAGNET model to run a scenariobased analysis of reform proposals of the RED II, including a reduction of palm oilbased biodiesel. According to their model results, the reduction results in lower biodiesel and higher bioethanol production in the EU, as well as fewer vegetable oil imports from Asia and more production of oilseeds in the EU, while global total oilseed production increases. Their approach faces three limitations. First, as also acknowledged by the authors, in their evaluation palm oil imports may be reduced too much due to approximations considering the vegetable oil trade. Second, given the aggregated oilseed sectors, the authors are unable to track substitution effects between different oilseed oil types in biofuel sectors. Third, it remains unclear how it is assured that biodiesel imports into the EU are not based on palm oil. Taheripour etal.(2019) and Busch etal.(2022) model restrictions in palm oil production for Malaysia/Indonesia (MAI). Taheripour etal.(2019) employ the CGE model GTAPBIO and assume domestic taxes in MAI, or global import tariffs for palm oil depending on their scenario. They conclude that concentrating restrictions only on one crop, and thereby only on one driver of deforestation, 17571707, 2024, 1, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/gcbb.13115 by Catholic University Of Applied Sciences Freiburg, Wiley Online Library on [06/02/2024]. 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| 3 of 14 HEIMANN etal. leaves room for other drivers that step into place, limiting the overall effects of restricting palm fruit production for stopping deforestation. Furthermore, they note that reducing palm oil production leads to a global demand shift towards other vegetable oils, increasing the production of other oilseed crops. Their results are in line with the findings of Philippidis etal.(2018). Busch et al. (2022) differentiate between high- and lowdeforestation palm oil in Indonesia to model the landuse and emission effects of banning the use of highdeforestation palm oil by various regional groups, including the EU. They employ a linkage of the CGE- Model GTAPBIO and the regional landuse model OSIRIS. According to them, over 60% of the EU palm oil imports from MAI are highdeforestation palm oil. Thus, banning highdeforestation palm oil in the EU causes a 54% reduction in total palm oil imports from this region, while the lowdeforestation palm oil imports increase by 31%. The authors summarize that this policy leads to 1.6% less deforestation compared to the baseline, as high deforestation palm oil is then traded to other regions. Therefore, they report a larger price premium for lowdeforestation palm oil (Busch etal.,2022). This study adds to the literature on two levels. First, in contrast to Taheripour etal.(2019) and Busch etal.(2022), we do not model a hypothetical scenario, but a concrete policy that has been put in place by the EU. Thereby we do not only evaluate the effects of the policy on deforestation pressures in MAI, but we also look at global substitution and price effects and evaluate which region may economically benefit from this policy. By implementing a specific palm oil biodiesel sector, we avoid the aboveelaborated simplification of the study by Philippidis et al. (2018). Second, we analyse the additional phaseout of soy oilbased biodiesel, which has not yet been quantified in the literature. Compared to palm oil, the soy oilbased biodiesel phaseout not only affects different regions, but may also have different implications on land use, as soy is an annual crop, and not a perennial crop like palm fruit. 2 | MATERIALS AND METHODS 2.1 | The DARTBIO model and data sources As examined in the literature review, CGE models have often been used to study the impacts of biofuel policies. This is because they are powerful tools when it comes to tracing policy effects on product and factor markets, as they encompass the complete circular flow of income in an economy through linkages in factor markets as well as in production and consumption. In addition, global CGE models capture trade flows in the world economy and can thus depict feedback effects of highly integrated agricultural markets on land use in various regions. For our analysis of the RED II, we employ an updated version of the DARTBIO model, a multisectoral, multiregional recursive dynamic CGE model of the world economy with a detailed representation of the biofuel industry and global land use (Calzadilla etal.,2016; Delzeit, Klepper, et al., 2018; Klepper & Peterson, 2006; Springer, 1998). TableA1 in the AppendixS1 shows our regional aggregation featuring 21 regions with a focus on big global biofuel producers such as the USA, MAI and the EU. Similarly, our sectoral disaggregation with 48 sectors, as shown in TableA2 in the AppendixS1, considers the different stages of biofuel production in detail with the major biofuel feedstock crops, biofuels and byproducts. The DARTBIO model is based on the GTAP9 database (Aguiar et al., 2016). Following Calzadilla etal. (2016), the model includes bioethanol production from sugar cane/beet, wheat, maize and other grains; and biodiesel production from palm oil, soybean oil, rapeseed oil, used cooking oil (UCO) and other oilseed oils. DARTBIO explicitly accounts for the byproducts generated during the production process of different vegetable oils and biofuels. Dried distillers grains with solubles (DDGS) are byproducts of the production of bioethanol from grains and oilseed meals/cakes are byproducts of different vegetable oil industries. The production shares of DDGS and oilseed meals are presented in TableA3 in the AppendixS1. Thus, unlike the standard GTAP database, we differentiate between production activities and commodities, which allows us to model joint production in the bioethanol and vegetable oil industry. Calzadilla etal.(2016) and Delzeit, Winkler, et al. (2018) find that differentiating different vegetable oils and their different shares of coproduced meals result in smaller price changes compared to models without these differentiations. In this updated version, in addition to the biofuels in Calzadilla etal.(2016), we include a dedicated palm oilbased biodiesel sector to be able to implement the palm oil biodiesel phaseout unambiguously. The new sectors are split from aggregated sectors in the original GTAP9 database using splitting weights calculated from data sources such as COMTRADE, FAOSTAT and F.O. Licht. Details on the construction of the DARTBIO database as well as assumptions regarding production technologies are available in Delzeit etal.(2021). Unlike palm oil, soy oilbased biodiesel was not disaggregated from the biodiesel sector when constructing the DARTBIO database. In order to restrict the consumption of soy oilbased biodiesel in the EU for this study, a combination of constraints on production and exports was implemented. For this purpose, soy oil used in EU biodiesel 17571707, 2024, 1, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/gcbb.13115 by Catholic University Of Applied Sciences Freiburg, Wiley Online Library on [06/02/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
4 of 14 | HEIMANN etal. production was modelled into a Leontief production nest separate from other intermediates. Outside of the EU, the 2019 shares of biodiesel produced from soy oil were calculated using data from the USDA and EIA (EIA,2021; USDA Global Agricultural Information Network (GAIN) reports,2015–2021h). These were assumed to be constant after 2019, identical across export destinations and between domestic and export markets to estimate soy oilbased biodiesel trade in the following years. The economy in each region is modelled as a competitive economy with flexible prices and market clearing conditions. The economic structure of DARTBIO is fully specified for each region and covers production, investment and final consumption by a representative consumer and the government. Private consumption is maximized according to a Stone–Geary utility function (Stone,1954), while multinested constant elasticity of substitution (CES) functions determine substitution between production factors and energy in the production sectors. Other intermediate inputs enter the production of commodities subject to fixed input–output relations. Assuming that labour and capital are homogeneous goods, they can move across industries within regions, but cannot move internationally. Apart from capital and labour as individual factor inputs, the land is disaggregated into 18 different land types according to the length of the growing period and climatic zone. Thus, we include not only landuse heterogeneity in agriculture and forestry, but these agroecological zones (AEZs) also cover land heterogeneity in each region (Baldos,2017; Lee etal.,2005). Land mobility between sectors is governed by constant elasticity of transformation (CET) functions. DARTBIO applies a threelevel nesting structure, where land is first allocated agriculture and managed forest. In the second nest, agricultural land is allocated between pasture and crops. At the next level, cropland is allocated between rice, palm, sugar cane/beet and annual crops (wheat, maize, rapeseed, soybeans, other grains, other oilseeds and other crops nec). At each level, the elasticity of transformation increases, reflecting that land is more mobile between crops than between forestry and agriculture. Transformation elasticities are taken from OECD (2001). An extensive modelling comparison by AgMIP (Schmitz etal., 2014) reveals that identifying transformation elasticities in CGE modelling is challenging due to the lack of conclusive empirical evidence. The CET function concerns landuse change within managed land. Some models include an endogenous expansion of agricultural and forestry activities into unmanaged areas governed by land supply functions (e.g. Banse etal., 2008; Philippidis etal.,2018), while other model apply scenariobased expansion (e.g. Zabel etal., 2019). Trade between regions happens under the Armington assumption of imperfect substitution between imported and domestically produced commodities. The numeraire region is the USA. Investment in each region is determined by fixed private marginal propensities to save, but fastgrowing regions' saving rates converge to those of industrial countries. The model is recursive dynamic and is solved for a sequence of static annual equilibria for periods from 2011 to 2030. Over this period, we calibrate the model to match regional GDP growth projections of the OECD(2018a) via adjustments of labour productivity and update key parameters between the model runs. The capital stock available for the next period is updated with the current period's investments and depreciation, while labour supply changes according to regional workforce and population growth projections OECD(2018b). 2.2 | Definition of scenarios To capture the potential impact of the phaseouts of particular biofuel feedstocks on agricultural markets, we define three different scenarios until 2030. Table1 gives an overview of these scenarios which are described in detail below. The different mandates are implemented within the scenarios via a binding quota on composite consumption. Practically, this quota is implemented as a negative endogenous tax on consumption. TABLE 1 Scenarios. Name Biofuel policies Feed- and foodbased biofuels Palm oilbased biodiesel Soy oilbased biodiesel RED II No Phase- Out (NPO) 7% of total consumption in transport sector are reached until 2030 No restriction No restriction RED II Palm oil Phase- Out (PPO) 7% of total consumption in transport sector are reached until 2030 Consumption share in total transport sector reduced to 0% between 2022 and 2030 No restriction RED II Palm and Soy oil Phase- Out (PSPO) 7% of total consumption in transport sector are reached until 2030 Consumption share in total transport sector reduced to 0% between 2022 and 2030 Consumption share in total transport sector reduced to 0% between 2022 and 2030 17571707, 2024, 1, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/gcbb.13115 by Catholic University Of Applied Sciences Freiburg, Wiley Online Library on [06/02/2024]. 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| 5 of 14 HEIMANN etal. 2.2.1 | RED II No Phase- Out (NPO) The EU RED II stipulates a 14% share of renewables in total transport fuel consumption until 2030 and a provisional agreement is aiming to increase the target to 29%. In the RED II No Phaseout scenario (NPO) we assume that member states meet this renewable energy target in the transport sector with the maximum allowable share of biofuels according to the RED II. This means that the share of feed- and foodbased biofuels is gradually increased to 7% for bioethanol and biodiesel individually, and changes in biodiesel feedstock prices lead only to substitution within the biodiesel feedstock pool. It is known that member states may impose a stricter limit that would lower consumption below the 7% simulated. However, no specific values are yet communicated and choosing a different limit would therefore imply making additional assumptions. With the limit on 7% our result can be considered to show the upper benchmark of effects. In this scenario, we do not assume a phaseout of any biofuel feedstock, as this scenario provides us with the baseline to evaluate the effects of a phaseout of palm and soy oilbased biodiesel. 2.2.2 | RED II Palm oil Phase- Out (PPO) In this scenario, we implement the same assumptions as in NPO but apply the restriction on biodiesel from palm oil. This means that the maximum share of conventional biodiesel of 7% is still met until 2030, but that palm oilbased biodiesel is gradually phased out from 2022 until it is completely banned in 2030. The share of palm oilbased biodiesel must be replaced by other types of biodiesel. The scenario design enables us to investigate whether the EU’s strategy to ban palm oilbased biodiesel is effective in reducing ILUC and thus land demand in palm oilproducing countries, or whether the palm oil restriction functions without reducing deforestation pressures. 2.2.3 | RED II Palm and Soy oil Phase- Out (PSPO) In addition to the assumptions of the PPO scenario, this scenario simulates the additional phaseout of soy oilbased biodiesel, by gradually restricting soy oil that enters the biodiesel production in the EU starting in 2023 until none enters the sector by 2030. In addition, the import of biodiesel from countries that produce biodiesel from soy was restricted based on production shares from USDA and EIA data (EIA,2021; GAIN, 2015–2021h). 3 | RESULTS 3.1 | Biofuel and agricultural markets In the discussion of the results, we compare the two phaseout scenarios for biodiesel feedstocks to the reference scenario. Figure1 shows the share of different feedstocks used for biodiesel production in the EU in the respective scenarios. With no restriction, palm and soy oil account for about 36% of the biodiesel feedstock. When palm oil is phased out in the PPO scenario, the share of rapeseed oil increases the most, followed by increased use of other oilseed oils and soy oil. In the PSPO scenario, where also soy oil is phased out, rapeseed oil fuels nearly half of the European biodiesel production. In addition, the share of other oilseed oils increases, which leads to almost doubling of oilseed oil imports (1.7 bill. USD in PSPO) from the former Soviet countries (FSUs), where Ukraine is the major producer of sunflower oil. These results do not account for the increased price volatility and supply risks due to the Russian war on the Ukraine. Berndt etal.(2022) shows FIGURE 1 Biodiesel feedstock shares in the EU in 2030. 17571707, 2024, 1, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/gcbb.13115 by Catholic University Of Applied Sciences Freiburg, Wiley Online Library on [06/02/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
6 of 14 | HEIMANN etal. the impacts of the war on global agricultural markets, including the vegetable oil sector. Figure2 shows the changes in global and regional production and prices of oilseeds. In the PPO scenario, our results show an increase in global rapeseed prices which is driven by the increased demand and prices for rapeseed in the EU. In other regions, besides Russia (RUS) and the FSU, the rapeseed prices remain stable, and in some regions even decrease (<1%). Looking at rapeseed production, the largest increases occur in the EU, RUS and FSU. EU imports of rapeseed and rapeseed oil from RUS and FSU increase, and the EU becomes a net importer for both commodities, as displayed in Figure3 in the next section. Soybean production increases by only 0.1% in the PPO scenario, caused by increased demand for soy oilbased biodiesel in the EU. Soybean prices remain stable in this scenario. The prices decrease strongest in the case of palm fruit in MAI (−9.8%) and in Sub- Saharan Africa (AFR) (−5.4%). This is caused by a decrease in demand in the EU by phasing out palm oilbased biodiesel, which takes place in both scenarios, PPO and PSPO. Therefore, in MAI, while palm fruit production is 1.8% lower, land prices decrease and other oilseed production (such as coconut) that is consumed by the food and chemical industry, increases by about 9% compared to the baseline. The prices for other oilseeds do not change in this region. When phasing out soy oilbased biodiesel in the PSPO scenario, increase in rapeseed production in the EU is double as high as in the PPO scenario. Thus, this policy affects rapeseed production similar to phasing out palm oilbased biodiesel. However, in addition to increasing rapeseed production, also the production of other oilseeds is increased by 4.2% in the EU. Thus, total oilseed production in the EU is stronger affected by the PSPO scenario than by the PPO scenario. Soybean production decreases in the PSPO scenario in the USA, Brazil and the PAC region (Paraguay, Argentina, Uruguay, Chile). This is because total EU consumption of soy oil in PSPO is reduced by more than 50% (equivalent to 9% FIGURE 2 Production and producer prices for oilseeds in selected regions. Percentage change to NPO scenario in 2030. 17571707, 2024, 1, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/gcbb.13115 by Catholic University Of Applied Sciences Freiburg, Wiley Online Library on [06/02/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
| 7 of 14 HEIMANN etal. of global consumption) compared to the baseline, in which soybean oil became almost as important for biodiesel production in the EU as palm oil until 2030 (see Figure1). Even though demand for soybean meal from the livestock sectors is the most important driver of soybean production, the demand shock in PSPO is large enough to drive down world market prices for soy oil and to trigger production reactions. However, the relative reduction in soybean prices is lower than the reduction in production. Soybean is an annual crop, and soybean farmers can relatively easily adjust the planted area to changes in demand. In DARTBIO this is governed by the CET function (see Section3.1). In contrast, palm fruit is a perennial crop such that higher price changes are needed to change land use compared to annual crops. With falling demand, land prices decline such that also producer prices decrease. Moreover, the regions of palm fruit production in South- East Asia are not typically used or suitable for rapeseed or soybean cultivation. Therefore, palm fruit is also the only crop for which the relative reduction in price, caused by the phaseout, is larger than the relative reduction in production. This is especially the case for MAI where palm fruit production is more competitive than in AFR. It is important to note, that compared to the scenario base year (2019), palm fruit area expands in every scenario, but less under the PPO and PSPO scenario compared to the baseline. 3.2 | Implications on global trade The simulated changes in the EU's demand for biodiesel affect global trade in several ways. Figure3 shows the EU's net exports of agricultural commodities for the respective scenarios. As previously mentioned, the EU becomes a net importer of rapeseed in the PPO scenario. Also, the net exports of other oilseeds and wheat decrease, and the net imports for all vegetable oils besides palm oil increase. The imports of palm oil drop as a result of the phaseout of palm oilbased biodiesel. The remaining palm oil imports are predominantly used in the food sector. Looking at the impacts of the PSPO scenario, soybean and soybean oil imports into the EU decrease. For the other commodities, the effects already seen in the PPO scenario increase in magnitude. It is relevant to note that in the PSPO scenario, the increase in EU rapeseed production replaces domestic wheat production, which in turn leads to a reduction of the net exports by 4.5% compared to the baseline. The scenario assumptions have feedback effects on bilateral trade patterns between the EU and those regions where the respective commodities are produced. Figure4 displays the bilateral exports of vegetable oils by destination from major producing regions. The trade effects reflect the changes in production as discussed in the previous section. The lower imports of vegetable oil of the EU from MAI in the PPO scenario (−75%) lead to 1.8% less palm fruit production in MAI, and cause an increase in vegetable oil exports from MAI to other Asian countries (+12%). Therefore, these countries import less vegetable oils from South America and the USA. This effect is reversed when looking at the PSPO scenario. Due to the reduced soy oil imports to the EU, Asian countries increase vegetable oil imports from the American continent. However, Asian countries cannot absorb the soy oil that would have been traded to the EU. As elaborated previously, in contrast to palm fruit production in the palm oil phaseout, soybean production changes more when implementing a soy oilbased biodiesel phaseout. This is reflected in the trade values. FIGURE 3 EU net exports in Billion USD. 17571707, 2024, 1, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/gcbb.13115 by Catholic University Of Applied Sciences Freiburg, Wiley Online Library on [06/02/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
8 of 14 | HEIMANN etal. 3.3 | Implications for producers and consumers Figure5 provides an overview of regional agricultural producer income, firms' expenditure and household expenditure, aggregated over all crop commodities. It can be noted that changes in household expenditure are similar to changes in the aggregated consumer price index for agricultural commodities, as total direct consumption of agricultural commodities remains constant across the scenarios. In the PPO scenario, changes in producer income, and household and firms' expenditures by under 1% appear in most of the regions, besides AFR, MAI and EU. Especially in MAI, farmers have an aggregated lower income of −3.4% with the palm oil phaseout. Firms' expenditure reduces by almost the same, driven by lower costs for the vegetable oil industry. Household expenditure in MAI, however, decreases by −0.7%. On the one hand, palm fruit is not directly consumed by households, and on the other, the expansion in palm fruit production is barely reduced in favour of other agricultural commodities that are directly consumed by households in MAI. Thus, price effects caused by lower palm fruit prices are transmitted to the palm oil sector whose products are: (1) not sufficiently consumed domestically to affect total household expenditure, (2) exported at lower prices and (3) used by industrial sectors where the price decrease has no noticeable effect on output prices. We observe a different development in AFR, where in contrast to MAI palm fruit expansion is substituted by FIGURE 5 Producer income, firms' and household expenditure—all crop commodities aggregated. Percentage change to NPO scenario in 2030. Changes in household expenditure are very similar to changes in aggregated agricultural consumer prices. FIGURE 4 Bilateral exports of vegetable oils from major vegetable oil producing countries to major destinations. 17571707, 2024, 1, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/gcbb.13115 by Catholic University Of Applied Sciences Freiburg, Wiley Online Library on [06/02/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License