Essays in Honour of Horst Hanusch
Edited by Andreas Pyka, Uwe Cantner, Alfred Greiner and Thomas Kuhn
9. Biofuels, innovations and endogenous growth Thomas Kuhn and Michael Pickhardt INTRODUCTION 1. In the European Union (EU), about 99 per cent of the transport sector’s energy demand is covered by petroleum oil products, which represents 67 per cent of final oil demand (European Commission, 2001, pp. 16 and 36). Yet limited stocks of non-renewable fossil fuels as well as temporarily limited production and distribution capacities, coupled with increasing fuel demand, are bound to lead to sharp increases in fossil fuel prices and to more price volatility in the near future. But in a globalized economy, which naturally depends on the smooth functioning of the transport sector, such price developments and the associated adjustment processes may have a severely negative impact on economic growth. Moreover, as fossil fuel stocks in the EU and other developed countries contribute an ever-decreasing share to local fossil fuel demand, growing import dependence and the associated risks may represent another important obstacle to future economic growth. Finally, current growth rates in virtually all countries may not be sustainable with fossil fuels, because fossil fuels contribute a substantially larger share to pollution and global warming (for details see, e.g., Pahl, 2005, pp. 56–60). Hence, for the foreseeable future, sustainable growth rates necessarily require a massive substitution process in which fossil fuels are gradually replaced by biofuels or hydrogen. To this extent, growth-orientated policy schemes as well as future energy policy must be, in large part, concerned with transportation fuel issues (Pickhardt, 2005, p. 497). Yet,...
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