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Abstract
This paper provides an overview of the environmental, economical, and policy
considerations related to biofuels. While the biofuel production and consumption
exhibited significant increase over the first decade of the new millennium,
this and further increases in biofuel production are driven primarily by
government policies. Currently available first generation biofuels are with a
few exceptions not economically viable in the absence of fiscal incentives or
high oil prices. Also the environmental impacts of biofuels as an alternative
to fossil fuels are quite ambiguous. The review of the most recent economic
models dealing with biofuels and their economic impacts provides a distinction
between structural and reduced form models. The review of reduced models is structured toward the time series analysis approach to the dependencies between prices of feedstock, biofuels, and fossil fuels.