Commodity price dynamics and market interdependence in second-generation biofuels: implications for sustainability
Year: 2025
Type: article
Abstract: This study examines the relationship between agricultural commodity prices and the dynamics of used cooking oil methyl ester (UCOME), a crucial biofuel within the context of the European Union's Renewable Energy Directive (RED).The principal motivation is to enhance the understanding of the economic interdependence between first-generation agricultural feedstocks and second-generation biofuels, such as UCOME, particularly under the sustainability criteria set by RED III. This study employs a vector error correction model using monthly data from January 2019 to June 2024. The findings reveal that palm oil and soy oil exert an influence on UCOME prices, with palm oil demonstrating the most substantial and persistent impact. The findings are further validated by the results of impulse response analysis, which indicate that price shocks in this market persist over time, maintaining a significant effect even beyond the 10th period. The study also utilizes variance decomposition analysis, which shows that by the 10th period, palm oil accounts for 42.85 % of the forecast error variance in UCOME prices, followed by rapeseed oil (13.11 %) and corn (6.26 %). In contrast, wheat and canola exhibit a more moderate and transitory influence, reinforcing their lower relevance in shaping long-term UCOME price dynamics. The main contribution of this research lies in its empirical examination of the structural link between first-generation biofuel feedstocks and the price dynamics of second-generation alternatives. This connection is further substantiated by robust checks conducted using autoregressive distributed lag model with error correction mechanisms, which confirm the presence of both short-term and long-term dynamics in these relationships. These empirical insights are relevant in the context of the RED, which was expected to displace first-generation feedstocks in favor of more advanced biofuels. However, the findings indicate that this transition has been slower and more complex than anticipated. The persistence of high-indirect land use change commodities in price formation underscores the structural and regulatory challenges that continue to shape the biofuel market, highlighting the need for more effective mechanisms to accelerate the adoption of truly sustainable alternatives.
Source: Journal of Cleaner Production
Author: Ana Catarina de Paula Leite
Institution: University of Coimbra
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,660
OpenAlex ID: W4410596067