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Modelling the Effect of Brent Oil Price, World Sugar Price, and Sugar Beet Raw Price on Bioethanol Price in an Emerging Market: An Empirical Study

ILHAN BORA1, DERVIS KIRIKKALELI2
1. Faculty of Business, Cyprus Science University, Kyrenia, Northern Cyprus., TR-10 Mersin, Turkey
2. European University of Lefke, Faculty of Economics and Administrative Sciences Department of Banking and Finance, Lefke, Northern Cyprus., TR-10 Mersin, Turkey

Abstract

Energy economics and global warming have become one of the hottest topics in the world’s agenda. In this study, we aim to explore the possible effect of Brent oil price, world sugar price and sugar beet raw price on bioethanol price in Turkey using Johansen cointegration test, Vector Error Correction Model (VECM) and Block Exogeneity Walt test, covering the period from 1995-2014. Our findings reveal that (i) the combination of Brent oil price, world sugar price and sugar beet raw price has a significant effect on bioethanol price in the long-run; (ii) vulnerability in sugar beet raw price and Brent oil price leads to change in bioethanol price in Turkey.


INTRODUCTION

Recent technological revaluation and industrial competitions around the world indicates that many countries are facing quite a lot of challenges in the field of economic development. Bioethanol has become more attractive recently because of its environmental benefits and the negative impact of the CO2 and other harmful gases. The concept of bioethanol is getting more and more attractive to researchers because of rising global investments in green energy. It is well known that billions of euros are being invested and used to promote this sector around the world. Bioethanol is expected to play an increasingly important role in the transportation market, as the world searches for ways to reduce fossil fuels depletion and emissions. According to the prediction of International Energy Agency (IEA) (2011), the portion of bioethanol in the global transportation fuel will increase more than a thirteen-fold from 2010 (2%) to 2050 (27%). The major difficulty and challenges of bioethanol productions are cost variations around the globe which can vary widely by feedstock, conversion process, scale of production and region (IEA, 2011).


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