Economic ripple effects of policy coordination on bio-ethanol production and trade in east Asia: Application of international inter-regional input-output analysis

Abstract

Bio-ethanol (BE) plays an important role in the reduction of greenhouse gas (GHG) emissions. Since East Asian countries face different economic and political situations and are located under different climatic conditions, GHG emissions, production costs and materials available for BE production differ, it is crucial to optimize production and trade of BE among East Asian countries by coordinating policies. This paper aims to show the economic merits of a policy coordination scheme for BE production and trade. The East Asian inter-regional I/O table was estimated from the GTAP (Global Trade Analysis Project, ver. 7) database to calculate production induced by investment for plant construction and working expenditure of annual production. Two different scenarios, the self-sufficient production scenario and policy coordination scenario, were considered to achieve an E10 policy with minimization of total CO2 emissions. In each scenario, an optimal level of production and trade quantity were calculated by a linear programming model (Takahashi, et al., 2010). The simulation results demonstrated that, first, the policy coordination scenario yielded a higher production as a benefit in the whole region than the self-sufficiency production scenario. Second, Japan and the USA greatly benefited from policy coordination even though the amount of their BE production increase was small. This is because these countries provide production machinery for plant construction and chemical materials for BE production. Third, BE production under policy coordination contributed to promoting pro-poor growth in the least developed countries such as Cambodia, Laos, Myanmar and Vietnam by improving agricultural production. Therefore, policy coordination for BE production and trade is a beneficial idea for development of East Asian countries. Particularly, Japan as a member of East Asia should take an initiative by investing money. In addition, the inter-regional I/O analysis employed in this study is useful for showing the benefits to policy makers.