This research investigates the profitability of biofuels production in Africa, taking Ethiopia as a case in point, and suggests an oil price threshold beyond which biofuel may be profitable. Specifically, the study analyzes the viability of bioethanol from molasses and biodiesel from other feedstock in the context of Ethiopia, using data from a biofuels investment survey by EEPFE/EDRI in 2010, and makes estimates based on field visits.

The U.S., Brazil and a number of European and other countries worldwide have introduced various support schemes for bioethanol and biodiesel. The advantage of these biofuels is that they are relatively easily integrated with the current fossil fuel-based transport sector, at least up to a certain point.

Rising prices of fossil fuels, together with apprehension about the environmental harm created by them, have resulted in increasing efforts to search for alternative energy sources such as biofuels. Biofuels production is still a debatable issue regarding the opportunities it creates and the challenges it poses.

Biofuels have received a great deal of attention globally, and many countries have embarked on producing biofuels, given the volatility and the recent all-time high of world oil prices.

The transport sector contributes almost a fifth of the current global emissions of greenhouse gases (GHG), and its share is likely to increase in the future. The US, Brazil, and a number of European and other countries worldwide have introduced various support schemes for biofuels.

In this study, we assess the economy-wide effects of biofuel investment in Ethiopia, with a focus on the external sector. The Government of Ethiopia has been revising its energy policy to switch from imported fossil oil to domestically produced biofuels, partly in response to climate change and partly in response to rising world oil prices, which leave oil-importing countries such as Ethiopia vulnerable to external oil price shocks.

The expansion of a given land use may affect deforestation directly if forests are cleared to free land for this use, or indirectly, via the displacement of other land-use activities from non-forest areas towards the forest frontier. Unlike direct land conversion, indirect land-use changes affecting deforestation are not immediately observable. They require the linking of changes occurring in different regions.

In response to global opportunities and domestic challenges, Ethiopia is revising its energy policy to switch from high-cost imported fossil fuel to domestically produced biofuels. Currently, there are biofuel investment activities in different parts of the country to produce ethanol and biodiesel. However, there is no rigorous empirical study to assess impacts of such investments.

This paper investigates the role of comparative advantage on biofuel policy adoption.

Results show that different countries have different drivers to create biofuel policies. GDP proves to be more significant for OECD countries, while arable land and feedstock prices are more significant for non-OECD countries. Land allocation may also be of importance. We speculate that a naturally endowed comparative advantage may not necessarily equate to a successful biofuel industry.

The purpose of the present article is to consider optimal trade policies for biofuels, taking into account the potential for carbon leakage and the complex set of policies used or discussed for biofuels. First, the authors consider the case of optimal trade policies and find that the combination of an import standard and a border carbon adjustment welfare dominates using only a border carbon adjustment (BCA).