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Dynamics and evolution of the role of biofuels in global commodity and financial markets

Nature Energy volume 1, Article number: 16169 (2016) Cite this article

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Abstract

Biofuels form part of a complex system comprising their production factors (usually agricultural commodities) and raw and retail fuels. Recently, it has been suggested that biofuels might affect or be affected by financial assets such as exchange rates, interest rates, stocks, and by other commodities. However, further extensive studies are required to investigate this. Here we present a combination of minimum spanning trees correlation filtration and wavelet analysis uncovering the ties in a wide portfolio of 33 commodities and relevant assets for biofuels between 2003 and 2016. We show that for Brazilian and US ethanol, their respective feedstocks lead biofuels prices, and not vice versa. This dynamic remains qualitatively unchanged when controlling for the influence of crude oil prices. In contrast, European biodiesel exhibits only moderate ties to its production factors. Other financial factors do not interact significantly with biofuel prices in general.

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Figure 1: Minimum spanning tree for 2003–2008.
Figure 2: Minimum spanning tree for 2008–2011.
Figure 3: Minimum spanning tree for 2011–2016.
Figure 4: Wavelet coherence for Brazilian ethanol and Brazilian sugar.
Figure 5: Wavelet coherence for US ethanol and corn feedstock.
Figure 6: Wavelet coherence for biodiesel and rapeseed feedstock.

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Acknowledgements

The research leading to these results was supported by Energy Biosciences Institute at University of California, Berkeley and by the European Union’s Horizon 2020 Research and Innovation Staff Exchange programme under the Marie Sklodowska-Curie grant agreement No 681228. The authors further acknowledge financial support from the Czech Science Foundation (grants number 16-00027S and 15-00036S). K. Janda acknowledges research support provided during his long-term visits at McGill University, Toulouse School of Economics, New Economic School, Australian National University and University of California, Berkeley.

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Authors and Affiliations

  1. Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00 Prague, Czech Republic

    Ondrej Filip, Karel Janda & Ladislav Kristoufek

  2. Department of Banking and Insurance, Faculty of Finance and Accounting, University of Economics, Namesti Winstona Churchilla 4, 130 67 Prague, Czech Republic

    Karel Janda

  3. Department of Agricultural and Resource Economics, University of California, 207 Giannini Hall, Berkeley, California 94720, USA

    David Zilberman

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  1. Ondrej Filip
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All authors have contributed equally to all aspects of the work.

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Correspondence to Ladislav Kristoufek.

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Supplementary information

Supplementary Data 1

Dataset of time series analyzed. Variables are colour-coded in correspondence with colours in Figures 1–3. Data sources are described in the Methods. (XLSX 185 kb)

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Filip, O., Janda, K., Kristoufek, L. et al. Dynamics and evolution of the role of biofuels in global commodity and financial markets. Nat Energy 1, 16169 (2016). https://doi.org/10.1038/nenergy.2016.169

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