The Effect of Biofuels on Crude Oil Markets

Abstract

To quantify the effect of biofuel on global oil markets, we extend the optimal export tax model to the global fuel market (henceforth, denoted as the Cartel-of-Nations model), recognizing that crude oil extraction and production are concentrated in a few countries (namely, the Organization of the Petroleum Exporting Countries), and that there is a wedge between fuel prices in oil-exporting and oil-importing countries. We calibrate the Cartel-of-Nations model to include biofuel using 2007 data.