Biofuel Investments and Implications for the Environment in Ethiopia: An Economy-wide Analysis

Biofuels production has received increasing focus by developed and developing countries due to rising fossil fuel prices and the need to mitigate greenhouse gas emissions. The net economic and environmental impacts of biofuel programs have become an important question of public policy. In particular, the anticipation that biofuels may have a lower environmental footprint than fossil fuels is one of the important drivers. This study investigates the economy-wide impact of biofuel investment in Ethiopia with the focus on greenhouse gas (GHG) emissions and the forest sector. In order to capture the intersectoral linkages between biofuels, crops, and livestock as well as energy activities, this study uses a recursive dynamic computable general equilibrium model calibrated on the revised version of the 2005/06 SAM  that includes GHG emissions, energy, and forestry products. The results suggest that an increase in biofuel investments would lead to an increase in GHG emissions, although the effects varied by biofuel feedstock types. These results have important implications for policies related to climate change mitigation as well as forestry.