Is there a role for biofuels in promoting energy self sufficiency and security? A CGE analysis of biofuel policy in Thailand

Given the rising price of crude oil, some developing countries including Thailand are looking towards developing their domestic renewable energy resources, in particular biofuels. However, there are concerns about the possible adverse effects such a policy strategy would have on key variables such as sectoral output, land allocation and the effects of prices, particularly food prices. This study develops a computable general equilibrium (CGE) model of the Thailand economy that features enhancements of the energy sector and uses it to analyze the government’s recent renewable energy development plan. This plan aims to increase domestic energy use from renewable sources to replace fossil fuel imports. The study simulated specific policies contained in the plan. Among other things, we found that promoting biofuel use causes a rapid increase in the price of biofuel and biofuel feedstock in the short-run, whereas these prices only increase slightly in the long-run due to more elastic supplies. The prices of food and other products marginally increase, implying that food security is not undermined by the policy. On the basis of the findings, the study recommends a review of some of the targets because they were found to be rather high, and a phasing in of others.