Macro-economic Impact Study (MES) for Biobased Malaysia

Project

Macro-economic Impact Study (MES) for Biobased Malaysia

Malaysia, the world’s second largest palm oil producer, wanted to know how to get the most from that industry’s waste products and by-products.

Context

The government of Malaysia aims to become a high income nation and reduce greenhouse gas emissions by 40% in 2020 relative to 2005.

Objective

The goal of this study is to estimate the macro economic impacts (including opportunity costs and other indirect effects) of using residues from the palm oil sector (trunks, fronds, empty fruit bunches, palm fibres, palm kernel shells) for the production of chemicals and energy in 2030.

Getting biofuel from vegetable waste rather than from food crops is pretty revolutionary and still under development.
Hans van der Meijl of LEI

Approach

Macro economic impacts are assessed using the Modular Applied GeNeral Equilibrium Tool (MAGNET), which is a modified version of the well known GTAP macro economic model. Four new biobased sectors are added to the standard 56 existing economic sectors :

1) small scale electricity generation

2) pellets (for export to Europe)

3) ethanol

4) bulk chemicals

Detailed calculations are carried out of the costs of producing biobased products compared to the price of the reference products or fossil fuels for which they are substituting. 30 million ton of biomass is assumed to become available at an average price of 56 US$ per dry ton biomass.

Results

  • The GDP effects of the production of ethanol and biobased chemicals are positive, +0.056% and +0.240 %, respectively, assuming
    1) an oil price of 125 US$ per barrel in 2030, which is in line with projections of the International Energy Agency and US Department of Energy
    2) that conversion technologies will become more efficient in the future.
  • Pellets are economically attractive (+0.13 %) as long as bioenergy policies in Europe are in place and assuming that the production of pellets from other sources or other substitutes do not decrease the (currently high) pellet price of 125 US$ per ton.
  • The total revenues generated by the biobased economy sum to almost 2% of GDP in 2030, but the total net GDP effect is +0.4% (excluding bioenergy).

Conclusions

  • The biobased economy can lead to substantial GDP growth. The production of biobased chemicals leads to higher GDP growth than ethanol, electricity or pellets, assuming an oil price of 125 US$ per barrel and that conversion technologies will become more efficient in the future.
  • The opportunity costs and other displacement effects are crucial when evaluating the macro economic impacts of the biobased economy. This is especially relevant for Malaysia, which has nearly full employment.
  • The macro economic impacts of a biobased economy in Malaysia could be higher or lower depending on the competitive advantage of Malaysia compared to other producers, the oil price, whether carbon credits are included and whether the demand for biobased products in other parts of the world continues to increase.
We are currently carrying out a similar macroeconomic exploratory analysis for the top of the Dutch bio-based economy sector.