The Effect of Biofuels Policies on Oil Consumption in the Transportation Sector in OECD Countries

Abstract

The increasing depletion of fossil fuels, greenhouse gases and climate change, dependence on foreign sources of energy and the need to diversify energy supply sources are increasing the importance of biofuels. In this paper, we investigate the effect of biofuels policies on oil consumed in transportation sector using the Augmented Mean Group (AMG) method for OECD countries between the periods 2006-2016. The petroleum import price and economic growth is added to the analysis as an auxiliary variable. Our findings show that the increase in biofuel production in selected OECD countries reduces the oil consumed in the transportation sector. This result shows that the increase in oil import prices will decrease the oil consumed in the transportation sector and therefore countries will switch to alternative oil sources such as biofuels.