Water Use for Biofuels in Europe

Water is a key input into production of agricultural crops that are processed into biofuels. We find that most EU Member States mandate higher shares of biodiesel relative to ethanol, thus essentially predetermining the use of water domestically and internationally (through trade in biofuels) because first-generation biodiesel can only be produced from specific crops. For a given overall biofuel mandate, water use for biofuels decreases with a higher share of biodiesel. The net global change in water use because of EU biofuel consumption is ambiguous and can only be determined empirically. Unlike previous scientific literature that determines the efficiency of biofuel production based on partial indicators, we propose a holistic economic approach that considers commodity prices and interactions.