Given the volatility of world oil prices and the recent all time high, which increased their popularity, bio-fuels have received a great deal of attention globally. The central questions of interest include whether this will have a positive or a negative impact on smallholder farmers and people living in rural areas, as more agricultural land will be used for biofuels production? And what is the effect of these large scale biofuels investments on growth and poverty reduction endeavors of poor countries?
However, given the volatility of oil prices it would be of interest to analyze the viability of investment on biofuels and determine the oil price threshold beyond which biofuel is profitable. Moreover, there are also concerns about environmental tradeoffs. An interesting issue in here is to examine how these hold for Ethiopia? This research will investigate profitability and economy-wide impact of biofuels investment in Ethiopia. Specifically, the research focuses on profitability and environmental impacts of biofuels investment in Ethiopia. The specific objectives of this study are to: (i) analyze the viability of investment on biofuels and determine the oil price threshold beyond which biofuel is profitable; (ii) assess how biofuels production affects the forest subsector; and (iii) examine net effect of biofuels investment on green house gas (GHG) emissions. The study will employ break-even analysis and CGE models for the empirical analysis.