Article Series: Biofuel Subsidies

A Review of Projected Biofuel Prices for the United Kingdom

A Review of Projected Biofuel Prices for the United Kingdom: Evaluating the role of the FQD model for road transport fuels (PDF - 331 KB)

This study conducts an ex-post analysis to assess a selection of key data relating to the use of the UK’s Department for Transports (DfT) FQD model. The FQD model is a tool used by the DfT to estimate the costs and benefits of using specific volumes of biofuels within the U.K.’s road transport fuel mix. The FQD model projects future biofuel prices based on a number of input assumptions relating to fossil-fuel prices (petrol and diesel) and the operational costs (OPEX) of biofuel producing refineries (principally input costs relating to the use of biofeedstocks).

Real market data for the years 2010 to November 2012 is compared against: a) projected biofuel prices generated by the DfT’s FQD model in 2009, b) projected fossil-fuel costs for diesel and petrol developed by DfT and used in FQD modeling runs, c) biofeedstock price projections developed by the DfT using the OECD-FAO AGLINK-COSIMO modelling system and used as part of the FQD models assumptions.

As the analysis only assessed a short period relating to the FQD’s models projected biofuel prices it is not possible to conclude biofuel prices have permanently diverged from projected estimates. However we observe:

  • Ethanol prices for the last two years, 2011 and 2012 have moved above the FQD models projected ‘Central Scenario’ price.
  • Biodiesel prices for 2011 fluctuated well above the projected ‘Central Scenario’ prices while were similar to the FQD models projected prices for 2010 and 2012.
  • Actual petrol and diesel prices were consistently higher for 2010 through to 2012 than DfT’s projected ‘Central Price’ scenarios published in 2009 and then updated in 2010.

This study emphasizes the uncertainty under which policy makers must operate when developing biofuel price projections and trying to forecast the direction of markets impacting the production costs and final price for biofuels. The insights generated by modeling exercises such as the DfT’s need to be balanced against the intrinsic challenges in anticipating long term changes in prices, price responses and technology or the development of society, whether in response to international commodity or fuel markets or specific U.K. or European policies.

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