Thesis

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COLLEGE OF ARTS AND SCIENCES

DEPARTMENT OF ECONOMICS
“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

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A Vector Autoregression Approach on the Dynamic Relationship of the Trends of

Biodiesel, Diesel Prices, GHG Emissions,
and Coconut Farmgate Prices
An Undergraduate Thesis Presented to the

Faculty of the Department of Economics – College of Arts and Sciences
San Beda University
In Partial Fulfillment
of the Requirements for the Degree
Bachelor of Science in Public Economics
By
Evan Gaubert P. Paz
April 1, 2019

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APPROVAL SHEET

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Table of Contents
APPROVAL SHEET ii
LIST OF TABLES iii
LIST OF FIGURES iv
LIST OF EQUATIONS v
LIST OF ACRONYMS vi
ACKNOWLEDGMENT vii
ABSTRACT viii
CHAPTER I BACKGROUND OF THE STUDY 10
Introduction 10
Statement of the Problem 13
Objectives of the Study 14
Significance of the Study 15
Scope and Limitations 15
CHAPTER II REVIEW OF RELATED LITERATURE 16
Studies about Oil 16
Studies about Forex 18
Studies about Biodiesel 19
CHAPTER III CONCEPTUAL AND THEORETICAL FRAMEWORK 25
Theoretical Framework. 25
Conceptual Framework. 26
Operational and Logical Framework of Analysis 28
Statement of Assumptions 29
Statement of Hypothesis 29
Definition of Terms 30
CHAPTER IV METHODOLOGY 31
Research Design and Approach 31
Research Procedures and Data Collections 33
Research Ethics and Approaches 33
Descriptive Trend Analysis 34
Model Specification 39
Threats to Data Reliability and Robustness of the VAR Model 40
Statistical Tools 43
CHAPTER V PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA 44
The Energy Demand and Supply situation from 1990 to 2017 44
The Diesel Price Situation from 1990 to 2017 47
The Biodiesel Supply Situation in the Philippines from 1990 to 2017 50
The Trend Oil Prices vis-a-vis Dubai Crude and Forex movements from 1990 to 2017 52
The Coconut Demand and Supply situation from 1990 to 2017 55
The dynamic relationship among trends of biodiesel demand, energy and greenhouse gas
emissions per oil consumption, diesel prices and coconut farmgate prices 56

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COLLEGE OF ARTS AND SCIENCES ii
Pre-Tests of Data 57
Vector Autoregression Specifications 59
Policy Implications 82
CHAPTER VI CONCLUSIONS AND RECOMMENDATIONS 84
Summary of the Study 84
Summary of Findings 87
Conclusions 88
Recommendations 88
Areas for Future Research 89
References 90
Appendix A. Unit Root ADF Test Results 92

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COLLEGE OF ARTS AND SCIENCES iii
LIST OF TABLES
Table Page
Table 1. Energy Demand and Supply ........................................................................................... 44
Table 2. Diesel Demand and Prices .............................................................................................. 47
Table 3. Biodiesel supply.............................................................................................................. 50
Table 4. Dubai Crude and Forex ................................................................................................... 53
Table 5. Coconut Demand and Supply ......................................................................................... 55
Table 6. Engle-Granger Cointegration Test Results ..................................................................... 58
Table 7. Test for Autocorrelation.................................................................................................. 59
Table 8. Test For ARCH ............................................................................................................... 60
Table 9. Doornik Hansen Test ...................................................................................................... 60
Table 10. Test for Lag Order ........................................................................................................ 61
Table 11. Var Model (biodiesel) ................................................................................................... 62
Table 12. VAR Model (Diesel Price) ........................................................................................... 64
Table 13. VAR Model (GHG Emissions per oil consumption) .................................................... 66
Table 14. VAR Model Coconut Farmgate Prices ......................................................................... 68
Table 15. Variance Decomposition Diesel Price .......................................................................... 74
Table 16. Variance Decomposition Biodiesel .............................................................................. 75
Table 17. Variance Decomposition for GHG ............................................................................... 76
Table 18. Variance Decomposition for coconut FGP ................................................................... 77
Table 19. Granger Causality Results ............................................................................................ 78
Table 20. Unit Root ADF Test Results ......................................................................................... 92

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COLLEGE OF ARTS AND SCIENCES iv
LIST OF FIGURES
Figure Page
Figure 1. Hubbert's Peak Oil Curve 26

Figure 2. Systems of Systems Model (Housh, et al.,) 2014 27
Figure 3. GHG Emission per oil consumption chart 46
Figure 4. Diesel price chart 49
Figure 5. Biodiesel Demand 52
Figure 6. Coconut Farmgate Prices 56
Figure 7. VAR Inverse Roots Results 70
Figure 8. Impulse Response Results Error! Bookmark not defined.
Figure 9. Direction of Effects 79

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COLLEGE OF ARTS AND SCIENCES v
LIST OF EQUATIONS
Equation Page
Equation 1. Vector Autoregression Equation ............................................................................... 34
Equation 2. Akaike Information Criterion Equation..................................................................... 35
Equation 3. Shwarz Bayesian Criterion Equation......................................................................... 35
Equation 4. Hannan- Quinn Criterion Equation ........................................................................... 35
Equation 5. Unit Root Test Equation ............................................................................................ 36
Equation 6. Granger Causality Test .............................................................................................. 37
Equation 7. F-Test......................................................................................................................... 41
Equation 8. R-Squared .................................................................................................................. 42

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COLLEGE OF ARTS AND SCIENCES vi
LIST OF ACRONYMS
BBL Billion Barrels

CME Coco-Methyl Ester
GHG Greenhouse Gases
KTOE Kilotonne of Oil Equivalent
MB Million Barrels
MMT Million Metric Tons

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COLLEGE OF ARTS AND SCIENCES vii
ACKNOWLEDGMENT
There’s a lot of people that I would want to put in here but the very first person would be
my mom. Mommy, thank you for all the sacrifices, time, effort, and everything else that you did
to get me to where I am today. You may not be here anymore but I want to thank you every
single day because I would be the person I am without you.
Second, I want to thank my grandmother and grandfather for raising a hard headed kid
like me. There’s no way I can repay all the times that you took me under your roof and arms. If
there is just one thing I could give you it would be time. I know you guys aren’t getting younger
anymore and I pray that you guys will always be healthy and that I will always get to see you
every day.
Third, I want to thank Pia. I know there’s no other woman in this world that would be
right for me except you. Thank you for all the time and effort that you spend on me just to make
sure I’m the best version of myself. You’re my motivation to strive harder every day so that
when I graduate, I can give us a good life that we deserve. I want you to know that you deserve
every good thing in this world because you are beautiful person inside and out. You made my
college stay the best years that I could ever have in my life and I want to spend more years with
you.
Fourth are my brothers, Jops, Evan, and Mik. These brothers served as my role model of
my four years in college. I learned a lot from them, the wit, mga kalokohan, and everything else
that there is. P.S. thank you guys for also making me a stronger drinker.
Of course, to my close friends, Dani, Julius, Joniel, Pau, and Drae. No matter what
happens you guys will always have a special place in my heart and especially in house whenever
we need to drink or have fun. Walang tatalo sa inyo, thank you for the four years and I wouldn’t
have it any other way.
I want to thank my adviser, Sir Joncy Mendoza. This paper would be finished without
you sir! Thank you for the guidance, motivation, patience, and knowledge for the past ten
months or more. I wish you all the best sir! Di kita makakalimutan promise, maraming salamat
po!
I’d also want to thank Ma’am Villoria and Sir Viray. Thank you so much you made my
college stay really meaningful and colorful. You’re one of the best professors ever!!
Laslty, thank you to Bingsu, my little source of happiness, you’re the best boy/dog ever,
don’t grow up to fast and thank you for always waiting for me to get home!!

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COLLEGE OF ARTS AND SCIENCES viii
ABSTRACT
Philippine’s oil dependency, environmental problems, and high fuel prices are the root
causes which help build the Biofuels Act of 2006. The recent global oil price trends are on the
rise and the exchange rates is not looking good for oil dependent countries. Furthermore, trends
of global copra prices are declining.
This research with utilization of the vector autoregression seeks to understand and
describe the dynamic relationships of the trends of biodiesel demand, diesel prices, GHG
emissions, and coconut farmgate prices. The study used data and statistics from 1990 up to 2017
to understand the dynamic relationship of these trends in the last 27 years in order to make
economic and environmental policy improvements.
The results show that biodiesel demand and diesel prices are bi-directional and that it
affects one another. Further established in the relationship of the granger causality was the
connection of diesel prices to GHG emissions and coconut farmgate prices. However, there is a
lacking link between biodiesel demand and GHG emissions and coconut farmgate prices.
The missing link of GHG emissions towards biodiesel demand can be attributed to the
small amount of biodiesel blends in the Philippines. Currently it’s too small to make significant
change or impact. However, the results show that the biodiesel has the potential to do that if
larger rates are utilized.
Furthermore, the current lack of technology, lack of support from the government, and
lack of sustainable farming tools is a reason why the link of coconut farmgate prices to biodiesel
demand is non-existent. The coconut industry in the Philippines can be great if maximized
properly, however, with these problems there are lots of gaps that are needed to be filled.

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COLLEGE OF ARTS AND SCIENCES ix
This study is about the analysis of the influence of the microfinance to the business of the
members; the researcher used quantitative measurements to determine the influence of the said
topic. The researcher has acquired the demographic profile, income, and the socio-economic
profile of the member and also the business. By using questionnaire to determine these variables
the researcher interviewed microfinance members one by one. researcher determines the
influence of the microfinance program and to further determine the factors for people to avail
microfinance.
The area of the researcher that was used to survey was Quezon City, because of the rising
numbers and local government support to promoting micro and small enterprises that
microfinance programs can produce. Capacity building is needed to the micro entrepreneurs, it is
a process of developing and strengthening the skills, instincts, abilities, processes and resources
that organizations and communities need to survive, adapt, and thrive in the fast-changing world

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CHAPTER I
BACKGROU
ND OFOF
BACKGROUND THE
THE STUDY
STUDY
Introduction
Oil in the global setting. Oil has been one of the most important commodities around the
world since the nineteen-fifty’s because it became a major source of energy for various
countries. Especially in the modern world where manufacturing, producing, and transporting
products are in need of oil in order to operate. Furthermore, it is widely used to provide power to
vehicles to give people transportation and bring them to different places. Oil is also used for
airplanes and ships to carry goods around the world so that international and local trade could
flourish.
With that being said, oil is mostly integrated into production and transportation of
different products. So when prices of oil are high, fuel and products that depend on these prices
are affected which results to also an increase of a certain good or service. According to U.S
Energy Information Administration, crude-oil accounts for fifty-four percent of fuel prices
meanwhile the remaining forty-six percent comes from refining, marketing, and taxes. Aside
from fuel, higher oil prices could also directly and indirectly impact firms and individuals
because it could drive up the prices of manufacturing goods and electric power generation.
However, the US EIA stated that the ninety-six percent of the impact of high oil prices
directly leads to transportation. This also leads to an increase of prices in agricultural products
and other food commodities. The domino effect also pushes industrial products, residential and

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commercial use, and electric power to increase their prices as well. In summary, higher oil prices
results to an increase of prices in most products we use and have today.
Oil in the Philippines. In almost the past four years global oil prices have reached its
highest point. One of the global benchmarks of oil prices, Brent Crude, was priced at $80 per
barrel and during the 2018 of October it peaked at $85.45 per barrel. The constant trend of rising
global oil prices does affect Filipinos in two ways.
First, due to higher oil prices local gasoline companies have directly increase their pump
prices which in turn affects anything or anyone that uses fuel. According to the report of Rappler
Philippines on October 2018 the average diesel price reached up to ₱49.6 per liter meanwhile the
average gasoline prices were ₱60.5 per liter. To put things into perspective diesel prices went up
by ₱1.35 per liter and gasoline prices increased by ₱1 per liter.
The increased fuel prices directly affect the transportation businesses, the commuters and
even owners of private vehicles. The second way Filipinos are affected by global oil prices is
from the indirect increase of prices of goods and services since petroleum is an input of
production. From the recent reports from the Department of Energy the demand for petroleum
products during 2017 increased from 82,277 MB to 83,621 MB (Million Barrels) on the first half
on 2018 which amounted for an 1.6% increase.
In other terms the 2017’s average daily consumption of 454.6 MB grew to 462.0 MB
(Million Barrels). According to the report of Department of Energy, the demand for diesel oil
went up to 5.0%, likewise for the demand of LPG and Gasoline grew by 10.6% and 2.4%,
respectively. Despite the increase there was a drop for fuel demand at 10.9%.

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Factors that causes high fuel prices. There are various factors that affect the fuel prices,
however, these are the following apparent reasons that may contribute to either the increase or
decrease of fuel prices. First would be the supply and demand which affects both prices of gas
and oil. In theory, when demand is greater than supply, prices tend to increase and vice-versa.
Additionally, seasonal demand can also affect the prices of oil and gas. Typically, prices of
gasoline tend to rise during summer time due to the fact that many families have vacations and
there are more people on the road traveling.
Another factor are commodities traders which purchases oil and gasolines at the
commodity future markets. The markets permit firms to acquire contracts at an agreed price at
some future time however these traders sell the contracts for profit instead of taking ownership
of gasoline. Gas and oil prices since 2008 are mostly affected by the movements of these
contracts and prices, however, sometimes prices are affected on buyer’s expectation on future
prices. Then after these traders perceive that oil will have high prices thus bidding them high
which creates an asset bubble. Sadly, these practices make the consumers pay more at the fuel
pump.
Reducing consumption and prices. There are many small and short-term ways to
reduce the consumption of fuel however countries need a sustainable plan where they can
continually have lower oil prices in the future. Through the existence of alternative fuels people
can switch to biofuels and even electric cars that can change their need and prices of oil and
gasoline. This practice is better, more environmentally friendly and sustainable.

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Statement of the Problem
1. What is the trend of the demand and supply of energy in the Philippines from
1990 to 2017?
2. What is the trend of the prices for diesel in the Philippines from 1990 to 2017?
3. What is the trend of the demand for biodiesel in the Philippines from 1990 to
2017?
4. What is the trend of the demand and supply for coconut in the Philippines from
1990 to 2017?
5. What is the trend of related oil pump price movements of the following from 1990
to 2017?
5.1. Foreign exchange
5.2. Dubai Crude oil price
6. How significant is the dynamic relationship among the trends of biodiesel
demand, energy and greenhouse gas emissions, diesel pump price and coconut farmgate
prices?
6.1. The impact of the lagged values in the selected variables

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6.2. Causal relationships among the selected indicators of the variables to estimate
the consequences of their changes
6.3. Magnitude of the response of the selected indicators to shocks
6.4. Fluctuations observed from each indicator and how the relationships are
explained
7. What are the policy implications?
7.1. Economic policy implications
7.2. Environmental policy implications
Objectives of the Study
The main objective of the study is to measure and describe dynamic relationship of
biodiesel demand, energy and greenhouse gas emissions, diesel and farmgate prices. Also, taking
into account how exogenous variables such as the Dubai crude, forex and self-sufficiency affect
such relationship.

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Significance of the Study
1. As a research material - The researcher wrote this thesis in order to gather further
information and knowledge about the dynamic relationships of biodiesel demand, energy and
food security, diesel and farmgate prices.
2. As an effective economic indicator - The researcher intends that the study can be a
helpful and useful tool to measure and describe the dynamic relationships of the variables
in the study.
3. As tool for policy making - The researcher aims that this study will assist with the
policies regarding demand of biofuel, energy and food securities, and prices of diesel
and coconuts.
4. As a material for the academe - The researcher aspires that this paper reflects the
Benedictine Hallmarks and serve as a paradigm of a true Bedan Community. Thus, help
continue to achieve the university’s mission and vision.
Scope and Limitations
The researcher identified the scope of the study to ensure a clearer and more efficient
study. Furthermore, the researcher identified the study’s limitations in order to see the potential
weaknesses so that future researchers can further improve on similar topics. The focal point of
the study will only be concerned about the dynamic relationship of biodiesel demand, energy and
food security, diesel and farmgate prices in the Philippines. The study however will also be
limited to the aforementioned variables aside from its exogenous variables.

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CHAPTER II
REVIEW OF
RELATED LITERATURE
REVIEW OF RELATED
LITERATURE
Studies about Oil
Dubai Crude Oil. The trend of global oil prices have been one of the determinants of
major developments in the world economy. One of the main benchmarks used for oil in Asia
since the mid-1980s is Dubai’s crude oil. Furthermore, Asia has become the main destination for
the incremental barrels of oil, thus playing a role in setting global oil prices. Quite naturally,
Asian companies are also becoming more involved in this process. Imsirovic (2014) stated that
Dubai Crude is responsible for the pricing of almost 30 million barrels per day (million b/d) of
crude oil exported to Asia (Imsirovic, 2014).
Crude oil is utilized as an input for various products needed for transportation such as
gasoline, diesel, and jet fuels. Another input for crude oil is used domestically and inside of
consumers’ homes such as heating and electrical generation. With oil's stature as a high-demand
global commodity comes the possibility that major fluctuations in price can have a significant
economic impact. Generally, the less processing or refining a crude oil undergoes, the more
valuable it is considered. Price differentials between crude oils typically reflect the ease of
refining.
Sunshine (2018) elaborated that crude oil can be refined to create products ranging from
asphalt and gasoline to lighter fluids and natural gas, along with a variety of essential elements

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such as sulfur and nitrogen. Petroleum products are also key components in the manufacturing of
medicines, chemicals, and plastics (Sunshine, 2018).
The price movement of crude oil can be attributed and affected by oil futures or futures
contracts of oil. These contracts are agreements to buy or sell oil at a specific date in the future at
a specific price. These oil traders bid on the price of oil based on what they think the future price
will be. They observe the projected and movement of the supply and demand to determine the
price. If traders think demand will increase because the global economy is growing, they will
drive up the price of oil. This can create high oil prices even when there is plenty of supply on
hand.
It is evident that there is a strong link between fuel, energy and agriculture. Right from
the start where crops and other agricultural commodities are grown, produced, and transported
all of these goods consume fuel and energy. The dynamic movement of the oil prices directly
affects the agricultural sector, therefore, higher fuel and energy prices would lead to an increase
in transport and production cost of these agricultural commodities. However, the prices of oil and
agriculture are not uniform across all locations and commodities since there are differences and
discrepancies in geography and production.
Through the widespread development of biofuels in various countries, the relationship of
fuel and agriculture is strengthened and enhanced. This makes the two sectors more interlinked
with each other.

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Studies about Forex
Forex and oil prices. Oil imports represent a significant fraction of the trade balance for
energy-dependent economies. In the case of small open economies with floating exchange rates,
the variability in oil prices is expected to have a large impact on the relative value of the
currency. Since oil contracts are denominated in US dollars, changes in the price of oil have
significant implications for the demand and supply of foreign exchange.
Norden & Amano, (1998) argued that supply-side shocks, which cause huge swings in
the price of oil, are likely to translate into permanent shifts in the long-term real exchange rate
equilibrium (Norden & Amano, 1998).
Because oil contracts, both in spot values and in future contracts, are denominated in US
dollars, local importers must sell their Pesos in the foreign exchange market in order to obtain
liquidity in US dollars. It follows that an increase in the world price of oil would place a
depreciating pressure on the Philippine Peso, whereas a decrease in the world price of oil would
allow for an appreciation of the Philippine currency.
The relationship between exchange rates and oil is strong. As suggested by Beckmann,
Czudaj, & Arora (2017) exchange rate movements are not a silver bullet for understanding or
forecasting the price of oil—and vice versa—and neither is a substitute for supply or demand
factors. However, each contains potentially useful information for forecasting the other and
should be taken into account, particularly over the short-run.

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Studies about Biodiesel
Understanding Biodiesel Production. The coconut, through the recent decade, has
become significant to the agricultural sector of the Philippines. Due to its abundance and many
uses, the coconut has already been transformed into various products in different fields such as
the food, clothing, and energy industries. In the modern day, coconut is being developed into
biodiesel through the process of transesterification. The process of transesterification is the
extraction of alkyl esters from coconut oil in order to produce biodiesel fuel. Furthermore, the
biofuel that is made out of vegetable oil or animal-based oil is called biodiesel.
Biodiesel could be used for cars, trucks, boats, or even bigger modes of transportation.
Particularly in the Philippines, the government implements the mixture of coconut oil in
biodiesel. Furthermore, the Philippines is the first country in South East Asia to implement a law
on biofuel usage however the country’s importation and dependence on foreign oil still remains
high.
The United Nations Conference on Trade and Development defined biofuel as any liquid
fuel made from plant material that can be used as a substitute for petroleum-derived fuel.
Biofuels can be categorized intro two types such as bioethanol which is made from sugar canes
and biodiesel which is made from coconut oil. However, researchers and people who produce
biofuels have no strict definition between the technical terms from the two generations.
The differences from the first generation of biofuels from the second generations are the
feedstocks that producers use. To further elaborate, The first generation biofuel comes from

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sugar, oil, seeds or grains. The certain edible portions of the feedstock are used for the first type
of biofuel. The Philippines’ first generation biofuel comes from the coco-biodiesel or coco-
methyl. Additionally, first generation biofuels are much easier to produce compared to second
generation biofuels.
In contrast, second generation biofuel comes the non-edible biomass residues of crops
such as husk of coconuts or rice. The disadvantage of second generation biofuels is that it is not
available for mass production.
The expansion of the biofuel program roots from its vision of increasing the biodiesel
blend from 2 percent to 5 percent within 2020 and to reach global standards in the near future.
One of the core objectives of the Biofuel Act of 2006 is to reduce foreign oil dependency, reduce
fuel prices, increase the opportunities for farmers, and mitigate air pollution.
In order to help farmers, increase their income the government should form support
policies that would aid farmers who are willing to grow biodiesel crops. As Braun (2007)
mentioned biofuel policies should focus on increasing investments in areas such as fueling
stations and rural areas (Braun, 2007). These policies should be in line with socioeconomic and
environmental goals.
Thus, increasing the blend could result into economic growth, development, and
opportunities for farmers in the rural areas and improvement in the coconut industry. More
important is that increasing the biofuel blends would decrease the dependence on foreign oil

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importation. A study by Chang & Su (2010) in the US found that the increasing prices of oil
increases the support and demand for biofuels (Chang & Su, 2010). In their case, the biofuel that
is supported and implemented in the US is bioethanol.
To further strengthen the claim that biofuel can help with socioeconomic development,
Pin Koh & Ghazoul (2008) stated that the demand for biofuels is expected to spur the
agricultural sector to increase production, resulting in higher employment rates and wages
particularly where agriculture is labor intensive (Pin Koh & Ghazoul, 2008).
Aside from these socioeconomic benefits, biofuels have an effect with the environment
since lands are remodeled for the production of biofuel. The effectiveness and efficiency of the
biofuel projects depends on the condition of land quality and availability, water resources, and
technology. Furthermore, market for biofuels is strongly connected with the environmental
policies. As Khanna (2010) stated in her book, using biofuels would improve energy securities
and reduce the greenhouse gas emissions (GHG).
One of the effects of biofuels is to reduce GHG emissions per consumption so that fuel
emissions would lessen negative impact on the environment. Firoz (2017) confirmed this effect
in his study; Biofuels does have a positive effect on the environment as it helps reduce pollution
and improve the health of people by lowering the emission of carbon dioxide (CO2) which
reduces the effect of global warming (Firoz, 2017)
Since biodiesel comes from natural and biodegradable resources it is considered to be
nontoxic. In contrast to petroluem diesel fuel, which is refined from crude oil, biodiesel emits
less air pollution and GHG emissions per consumption. Gheewala proves that there are positive

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effects of biofuel. As Gheewala mentioned that (2013) biofuels is perceived to improved
domestic energy security, reduced greenhouse gas (GHG) emissions and economic development
and employment generation, particularly in rural areas are made when compared with fossil-fuel
counterparts.
The Development of Biofuel. The 1973 oil crisis paved way for biofuels to emerged as
biofuels drew high interest to replace fossil fuels. During the Yum Kippur War between the Arab
states and Israel, the United States of America supported the forces of Israel meanwhile the
Soviet Union supported Egypt and Syria. Soon, members or Organizations of Petroleum
Exporting Countries (OPEC) stopped the exporting of oil to United States of America and some
parts of the western world as punishment for supporting their rivals. This resulted to higher
prices of oil throughout western world and particularly in America.
This forced the United States of America to find ways to mitigate high prices and find an
alternative source of fuel. By 1980’s until 1990’s, the world started to recognize the negative
impact that fossil fuel brings to the environment. During these times people became aware of the
dangers of climate change and pollution, this problem additionally gave biofuels more popularity
as time went on. Janda & Kristoufek, (2010) stated that while high oil prices might have
contributed to this growth, it was driven by government policies such as mandates, targets, and
subsidies which justified on the grounds of energy security and climate change considerations
(Janda & Kristoufek 2010).
Biofuel (biodiesel) demand. One of the key components to attain socioeconomic
development is to have accessibility to energy. As Yumkella, et al., (2010) mentioned lack of

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access to modern energy services hampers healthcare, gender equality, education, and poverty
alleviation and the ability of poor communities to make productive use of their natural resources,
time, and human energy is severely derailed by the lack of mechanical power (Yumkella, et al.,
2010).
Biofuels are highly demanded on oil dependent countries. They want to use biofuels in
order to reduce their importation and dependency on foreign oil. Furthermore, the trend of
biofuel demand are becoming higher since blend policies are mandated by the government. The
Philippine government highly supports its biodiesel program as its main domestic alternative
energy because they recognize it would be both beneficial for their economy and environment.
Oil dependent and developing countries such as the Philippines would utilize biofuels
because biofuels production has the capability to generate a positive effect on the agricultural
employment and expand opportunities for livelihoods, giving small-scale farmers and industries
that are located near the crop sources opportunity to develop and cultivate efficiently.
According to Pinto, Guariero, Torres, & Andrade (2005) biofuel production depends on
the availability of crops in each region or country (Pinto, Guariero, Torres, & Andrade, 2005).
Thus, in the Philippines, the government has chosen to use coconuts due to is abundance, low
cost and high yields of its coconut oil. Furthermore, the coconut industry in the Philippines is
strong and has the potential area to grow in this sector.
The top five producers of biodiesel in the Philippines can produce 362 million liters per
year. The government sees the significance and the potential impact of biofuels to farmers and
the whole industry.

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The popularity of biofuels will countinue to rise around the world and in the Philippines.
Henceforth, coconut farmers, the government, biofuel producers in Philippines should sieze the
opportunity to develop the production of biodiesels to further help the biofuel industry. As Braun
& Pachauri (2008) mentioned that energy crops could provide farmers with an important source
of demand for their products and biofuel production is as labor intensive as agriculture, it may be
a boon to rural areas with abudant labor (Braun & Pachuari, p.3&6, 2008).

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CHAPTER III
CONCEPTUA
Theoretical Framework
L AND
THEORETICA
Theoretical Framework. L
FRAMEWOR
Hubbert’s Peak Oil Theory. Hubbert’s
K Peak theory was a model intentionally made for
oil production although it could still be applied for other resources. Basically, the Peak Theory is
about the world’s crude oil production reaching its peak and eventually terminal decline.
Hubbert’s prediction was that oil would peak in the 1970s and was estimated that oil would peak
at year 2000. Although, it was eventually proven wrong because of technological revolution in
oil recovery, horizontal drilling, and hydraulic fracturing which has added billions more of oil.
Some researchers still continue believe that peak oil could still occur in 2015 or 2050.
Since oil is a nonrecyclable fund resource, the supply for oil has a finite number and
world has maximum threshold that it could allow for extraction and refining to satisfy man’s
consumption and needs. Base from Hubbert’s theory, peak oil can happen into two ways, the first
way could be the total depletion of the resource itself or the second one is a decline in producing
oil since markets are being driven out by oil alternatives that are cost effective.
A fear of most countries that are energy dependent is to experience oil peaking in its
supply side because having peak oil means that there are issues and problems with the extraction
of oil. With that being said, countries usually increase their oil prices basing from the assumption
that peak oil is near. However, this problem also creates the power of innovation and incentives
to draw away from that situation.

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Although, it is possible that demand may experience peak oil and at that point, the market
starts to recognize that alternative oil and energy becomes more efficient and cost effective than
to extract and refine oil. Soon markets and consumers may recognize alternative fuels as a need
for better costs and for its environment benefits. Thus, peak oil may occur sometime in the future
when the market sees the need and want for alternatives.
Figure 1. Hubbert's Peak Oil Curve
Source: Energy Education

Conceptual Framework.
Systems of Systems Model. According to the Housh, et al., (2014) expounded that
biofuel development is anchored by different subsystems that are interrelated with each other.
These subsystems are land-use, biorefinerery, transportation, social, and the environmental

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subsystem. Each subsystem has a role into furthering the development of biofuel. For example
land-use determines the allocation and efficiency of food which affects the optimal location, size,
and operations of biorefineries. Through the agriculture sector, they produce the feedstock then it
is transported to food markets or biofuel refineries. Furthermore, biofuel refineries are usually
located near both to raw materials and biofuel consumers.
According to Housh, et al., (2014) the social, transportation, and environmental
subsystems are affected through traffic, infrastructure development, and environmental
constraints that directly influce the acceptance or resistanc eof the local communities to these
refineries. (Housh, et al., 2014) Therefore, it is significant for a biofuel plan and model to
account for all possible changes and interpedencies of the subsystems.
Figure 2. Systems of Systems Model (Housh, et al.,) 2014
Source: Systems of Systems Model for Analysis of Biofuel Development (2014)

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Operational and Logical Framework of Analysis
Input. The following variables that are utilized on the study are biodiesel demand, diesel
pump prices, coconut farmgate prices, GHG emissions per oil consumption. Furthermore, the
following are utilized as the exogenous variables such as self-sufficiency, foreign exchange, and
Dubai Crude oil price.
Process. The researcher used a descriptive trend analysis through the Vector Autoregression
and several tests such as the Unit Root Test, Granger Causality, Impulse Response Function, and
Variance Decomposition. Additionally, the researcher ensured data reliability and robustness of
the model through the Engle-Granger cointegration test, VECM, a test for overall significance
and measurement of goodness of fit.
Output. After putting the gathered data through rigorous testing and analysis, the researcher
has constructed a comprehensive and insightful output for information sharing, a proper reading
material for the academe, and a medium for policy making.
Outcome. The trends of the following demand and supply of biodiesel, energy and coconuts
are properly identified and explained in the study. To understand and describe how dynamic are
the relationships of prices of diesel, biodiesel demand, GHG emissions, and coconut farmgate
prices to each other.
Impact. Results that are gathered and discovered will hopefully be useful as a medium for
policy making and be of service to reduce consumption of oil and high prices of fuel.
Furthermore, spark inspiration and ideas for further research on similar topics.

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Statement of Assumptions
1. There is balance between the demand and supply among energy, biodiesel, and
coconut in the Philippines.
2. There is an upward trend of diesel pump prices and coconut farm gate prices since
1990 to 2017.
3. There is an upward trend of oil pump prices in relation to foreign exchange and Dubai
crude oil price since 1990 to 2017.
4. There is a dynamic relationship among the trends of biodiesel demand, greenhouse
gases emissions, diesel pump price, and coconut farmgate prices.
Statement of Hypothesis
Utilizing the following tools of Vector Auto Regression, the granger causality test, and
impulse response analysis, will evidence to reject that
Ho1: Biodiesel Demand does not granger cause to Diesel Price, Coconut Farmgate
Prices, GHG emission
Ho2: Diesel Price does not granger cause to Biodiesel Demand, Coconut Farmgate
Prices, GHG emission
Ho3: Coconut Farmgate Prices does not granger cause to Biodiesel Demand, Diesel
prices, GHG emission
Ho4: GHG Emission does not granger cause to Biodiesel Demand, Diesel price, Coconut
Farmgate Prices

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Definition of Terms
Biodiesel. Refers to coco methyl esters (CME) that is derived from coconuts shall be
technically proven and approved by the DOE for use in diesel engines, with quality specifications
in accordance with the Philippine National Standards (PNS)
Biofuel. shall refer to bioethanol and biodiesel and other fuels made from biomass and
primarily used for motive, thermal and power generation, with quality specifications in
accordance with the PNS
Cointegration. Refers a statistical property of a collection of time series variables.
Crude Oil. Refers to Crude oil is a naturally occurring, unrefined petroleum product
composed of hydrocarbon deposits and other organic materials. A type of fossil fuel, crude oil
can be refined to produce usable products such as gasoline, diesel and various forms of
petrochemicals.
Foreign Exchange. Foreign exchange is the exchange of one currency for another or the
conversion of one currency into another currency. Foreign exchange also refers to the global
market where currencies are traded virtually around the clock.
Greenhouse Gas. Refers to the emission into the earth's atmosphere of any of various
gases, especially carbon dioxide, that contribute to the greenhouse effect.
Vector Autoregression. Refers to stochastic process model used to capture the linear
interdependencies among multiple time series. VAR models generalize the univariate
autoregressive model (AR model) by allowing for more than one evolving variable.

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CHAPTER IV
METHODOLOGY
METHODOLOGY
Research Design and Approach
A journal written by Christiano, (2012) about Sims’ econometric model stated that
Vector Autoregression could be utilized for three purposes. First, it could be a tool for
forecasting economic time series; Second, VAR could be designing and evaluating economic
models; and third, evaluating consequences of alternative policy actions (Christiano, 2012).
Many econometricians agree and believe that autoregression is one of the most flexible,
successful, and easy to apply for the analysis of a multivariate time series. It is widely proven
that VAR is practical and functional for describing and forecasting dynamic movements of
economic and financial realities. Aside from describing data and forecasting, the VAR Model is
also utilized for policy analysis and inferences.
Stock & Watson (2001) stated that in structural analysis, certain assumptions about the
causal structure of the data under investigation are imposed, and the resulting causal impacts of
unexpected shocks or innovations to specified variables on the variables in the model are
summarized (Stock & Watson , 2001). To put things into in perspective, the main idea of VAR is
that the value of a variable at a time point depends linearly on the value of different variables at
previous instants of time.
When it comes to forecasting, it requires set of specific variable or variables to predict in
a set future time period. An example, an economist would want to predict how the trend of oil

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prices would fluctuate. He will need to create assumptions, requiring him to make all things held
equal or “ceteris paribus” if needed to. The economist could decide to use the fluctuations of past
oil prices to forecast the future changes. He could even leave out other factors such as seasonal
demand or competition, out of the equations.
Period of study. The study made use of annual averages from 1990 up to 2017. The time
series data are separated at time intervals that are equal. Through a plotted data on a graph,
predicting the future oil prices is possible.
Variables of the study and measurement. To show the dynamic relationship of prices
in oil, the researcher made use of four endogenous variables and three exogenous variables that
could best represent the study. The prices of diesel, the demand for biofuel, coconut farm gate
prices, and greenhouse gas emissions per oil consumption were used as endogenous variables.
Furthermore, the exogenous variables are Dubai crude oil, forex and self-sufficiency of energy.

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Research Procedures and Data Collections
The study aims to analyze and describe the dynamic relationship among trends of
biodiesel demand, energy and greenhouse gas emissions, diesel pump price and farmgate prices.
With that being said, the researcher made use of the selected variables’ average annual data
which ranges from 1990 to 2017 (98 observations). The data of biodiesel demand, diesel pump
prices, energy, GHG emissions, and self-sufficiency were acquired through the Department of
Energy. The data from Dubai crude and Forex were acquired through the world bank.
Research Ethics and Approaches
Tripathy, (2013) stated that Secondary data can be large scale surveys or data collected as
part of personal research. Although there is general agreement about sharing the results of large-
scale surveys, but little agreement exists about the second. While the fundamental ethical issues
related to secondary use of research data remain the same, they have become more pressing with
the advent of new technologies. Data sharing, compiling and storage have become much faster
and easier. At the same time, there are fresh concerns about data confidentiality and security.
(Tripathy, 2013)
The study made use of secondary data that can be gathered through publicly available
sources such as Philippine Statistics Authority (PSA), the Department of Energy, CountryStat
Philippines, and World Bank. Furthermore, the researcher ensures that all gathered data are free
from tampering and falsefication to generate a study that can satisfy the objetives of the research.

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Descriptive Trend Analysis
The vector autoregression model of the research utilized diesel price, biodiesel demand,
GHG emissions, and coconut farmgate prices to analyze their dynamic relationships. The VAR
equations will be as follows.
yt= v+ A1yt-1 + A2yt-2 +…+Apyt-p +B0 xt + B1 xt-1 +…+Bqxt – q + ut
Equation 1. Vector Autoregression Equation

Where yt. T= 1, 2 …, T, is a K x 1 vector of time series, xt is a M x 1 vector of exogenous
variables. A and B are K x K and K x M coefficients matrix to be estimated, respectively and UT
is a random error term. When building the VAR model, it is a difficult and conflicting process to
determine the lag length p which can neither be too big nor too small. The larger the p is, the
more obvious the dynamic characteristics are reflected by the model and the larger the lag length
is, the more parameters are to be estimated and a lower degree of freedom is observed.
Therefore, it is necessary to find a balance between the lag length and the observed degrees of
freedom.
As a rule, endogenous variables that are contained in the vector consists of diesel price,
biodiesel demand, GHG emissions, and coconut farmgate prices or treated as exogenous
variables. Each equation has the same exogenous variables and the lagged exogenous variables.
In other words, each endogenous variable is explained by its lagged or past values and the lagged
values of all other endogenous variables in the model. An important step to take before building
the VAR model was to determine the selection of the VAR lag order. A method to identify the
optimal lag order is to use the minimum information criterion such as Akaike criterion (AIC),

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Shwarz Bayesian criterion (BIC), and Hannan-Quinn criterion (HQC). The three statistics can be
expressed as follows:
AIC = -21/n + k/nt
Equation 2. Akaike Information Criterion Equation
SC = -21/n + klogn/n
Equation 3. Shwarz Bayesian Criterion Equation
HQIC =
Equation 4. Hannan- Quinn Criterion Equation

where k is the number of parameters to be estimated and N represents sample size and
satisfied the following formula
Determining the Lag Order for the Vector Autoregression Model. In order to
construct the VAR model, the optimum number of lags is needed. The optimum lag length can
be determined either by using the Akaike Information Criteria (AIC), the Schwartz Information
Criteria (SC), Final Prediction Error (FPE), and Likelihood Ratio (LR) or by the Hannan – Quinn
Information Criterion (HQ). A * sign, located on the upper right of the value, will indicate the
lag order selected by the criterion.

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Unit Root Test. Unit root tests are tests for stationarity in a time series. A time series has
stationarity if a shift in time doesn’t cause a change in the shape of the distribution; unit roots are
one cause for non-stationarity. Through the results of ADF test gives sufficient evidence to
accept the conclusion that the level series is a non-stationary sequence. Additionally, variables in
the study were tested in its first-order difference. The test results will suggest if that null
hypothesis of a unit toot in first-order difference can be rejected for all variables at the 1%, 5%
or 10% significance level.
Equation 5. Unit Root Test Equation
Where Xt is the series being tested; t is the time trend; p is the number of lagged differences; and
Δ is the first difference operator. This test is applied to each of the variables to determine the
stationarity property in their levels and in their first difference. The ADF will confirm the
existence of a unit root in level for one variable, PP test will confirm the existence of a unit root
in level for two variables, and KPSS will confirm the stationarity of all variables.
Granger Causality. The VAR can be considered as a means of conducting causality
tests, or more specifically Granger causality tests. Granger causality really implies a correlation
between the current value of one variable and the past values of others, it does not mean changes
in one variable cause changes in another. By using a F-test to jointly test for the significance of
the lags on the explanatory variables, this in effect tests for ‘Granger causality’ between these
variables. It is possible to have causality running from variable X to Y, but not Y to X; from Y to

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X, but not X to Y and from both Y to X and X to Y, although in this case interpretation of the
relationship is difficult. The ‘Granger causality’ test can also be used as a test for whether a
variable is exogenous. i.e. If no variables in a model affect a particular variable it can be viewed
as exogenous.
Equation 6. Granger Causality Test
Where RSSR restricted residual sum of squares, RSSUR unrestricted residual sum of squares, m,
and number of lagged X terms, and k, number of parameters estimated in the unrestricted
regression. The test statistic follows the F-distribution with m and (n-k) degrees of freedom.
Impulse Response Function. The impulse response functions can be used to produce the
time path of the dependent variables in the VAR, to shocks from all the explanatory variables. If
the system of equations is stable any shock should decline to zero, an unstable system would
produce an explosive time path.
Forecast Error Variance Decomposition. This is an alternative method to the impulse
response functions for examining the effects of shocks to the dependent variables. This technique
determines how much of the forecast error variance for any variable in a system, is explained by
innovations to each explanatory variable, over a series of time horizons. Usually own series
shocks explain most of the error variance, although the shock will also affect other variables in
the system. It is also important to consider the ordering of the variables when conducting these

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tests, as in practice the error terms of the equations in the VAR will be correlated, so the result
will be dependent on the order in which the equations are estimated in the model.

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Model Specification
In this study, the VAR model is used to analyze the interaction of the four selected
endogenous variables of the study. This specifically includes the following steps: (1) Conduct of
the unit root test for all the variables and the Engle-Granger cointegration tests; (2) describe the
selection of lag order, model construct and the robustness test; (3) measure the Impulse response
functions and the variance decomposition.
The estimation of the parameters of the VAR model is not difficult, though the structure
of the VAR model looks very complex. They can be easily estimated by Ordinary Least Squares
(OLS) method or Maximum Likelihoods. Based on the objectives of the study, the econometric
model of the study can be expressed as:
Biodiesel = β0 + β1(Bio_Dt-1) + β2(Diesel_Pricet-1) + β3(GHGt-1) + β4(FGPt-1) + e

Diesel Price = β0 + β1(Bio_D-1) + β2(Diesel_Pricet-1) + β3(GHGt-1) + β4(FGPt-1) + e
GHG = β0 + β1(Bio_D-1) + β2(Diesel_Pricet-1) + β3(GHG-1) + β4(FGPt-1) + e
Farmgate Prices = β0 + β1(Bio_D-1) + β2(Diesel_Pricet-1) + β3(GHGt-1) + β4(FGPt-1) + e
Econometric model measuring the dynamics of the Philippine Stock Exchange
Where:
Bio_D = Biodiesel demand
Diesel_Price = Diesel Price
GHG = Greenhouse Gas emissions
FGP = Farmgate Prices
t-1 = Single Month Lag
B0 = Constant term (intercept)
B1, B2, B3, B4 = Partial regression coefficient; each regression coefficient represents the
amount of deviation of the group identified in the dummy variable from the mean of the
reference category

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Threats to Data Reliability and Robustness of the VAR Model
The researcher used different tests to identify and determine the statistical significance of
the variables, to measure the goodness of fit and check for the misspecification errors in the
model.
Engle-Granger Cointegration Test. The Engle-Granger method first
constructs residual errors based on the static regression. The residuals are tested for the presence
of unit roots using ADR or a similar test. If the time series is cointegrated, then the residuals will
be practically stationary. A major issue with the Engle-Granger method is that choice of the
dependent variable may lead to different conclusions, an issue corrected by more recent tests
such as Phillips-Ouliaris and Johansen’s.
Vector Error Correction model (VECM). In 1987, Engle and Granger formulated a test
that served as one of the first cointegrations tests. It is an approach to test whether variables used
are cointegrated and assumes a null of no cointegration. The first step is to estimate the
cointegrating regression followed by testing the unit root in the residual process of the
cointegrating regression. There is evidence for a cointegrating relationship if: (1) The unit-root
hypothesis is not rejected for the individual variables, and (2) The unit-root hypothesis is rejected
for the residuals (uhat) from the cointegrating regression.
Test for Overall Significance. In general, an F-test in regression compares the fits of
different linear models. Unlike t-tests that can assess only one regression coefficient at a time,
the F-test can assess multiple coefficients simultaneously.

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The F-test of the overall significance is a specific form of the F-test. It compares a model with no
predictors to the model that you specify. A regression model that contains no predictors is also
known as an intercept-only model.
Equation 7. F-Test
In which, R2 represents the coefficient of determination, k is the number of parameters,
and n is the number of observations. F test follows the following conditions:
Ho: The overall regression model is not significant.
Ha: the overall regression model is significant.
At 5% significance level, the rejection of the null hypothesis will be based on the
decision rule below:
Reject Ho: If the absolute value of F-computed is greater than the F-critical value at 5%
level of significance.
Accept Ho: If the absolute value of F-computed is less than the F-critical value at 5%
level of significance.
Test for Individual Significance. Once sample data has been gathered through an
observational study or experiment, statistical inference allows analysts to assess evidence in
favor or some claim about the population from which the sample has been drawn. The methods
of inference used to support or reject claims based on sample data are known as tests of

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significance. The alternative hypothesis, Ha, is a statement of what a statistical hypothesis test is
set up to establish. Every test of significance begins with a null hypothesis H0.
H0 represents a theory that has been put forward, either because it is believed to be true or
because it is to be used as a basis for argument, but has not been proved. T-Test is a measure of
individual significance of a variable.
Measure of Goodness of Fit/ Coefficient of Determination (R2). The Measure of
Goodness of Fit (R2) is defined as the measure of goodness of fit of the regression equation that
gives the percentage of the total variation in Y explained by the regression model. If the
computed R2 is 1, fitted regression model explains 100% of the variation in the regressand. The
fit of the model is said to be better if R2 is closer to 1. The coefficient of determination is
considered as the predictive power of the model. Wherein, the R2 considered as more meaningful
measure than r, it provides an overall measure to which the variation in one variable determines
the variation in another variable wherein it states the proportion of variation in the dependent
variable explained by the explanatory variables.
Equation 8. R-Squared

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Statistical Tools
Gretl. It is software that means for Gnu Regression Econometrics and Time-series
Library. It is a package for performing statistical computations for econometrics. It consists of
both a command-line client and a graphical client. It features a variety of estimators such as
least-squares and maximum likelihood.
MS Excel. Microsoft Excel is a spreadsheet program included in Microsoft Office suite
of applications. Spreadsheets will provide you with the values arranged in rows and columns that
can be changed mathematically using both basic and complex arithmetic operations. In addition
to the standard spreadsheet features, Excel offers programming support via Microsoft's Visual
Basic for Applications (VBA), the ability to access data from external sources via Microsoft’s
Dynamic Data Exchange (DDE). Microsoft Excel is an Electronic Spreadsheet Computer
Program.

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CHAPTER V
PRESENTATION,
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
ANALYSIS AND
INTERPRETATIO
The Energy Demand and Supply situation from 1990 to 2017
N OF DATA
Table 1. Energy Demand and Supply
Indicators 1990 2000 2010 2017 1990- 1990- 2000- 2010-
2017 2000 2017 2017
Oil Supply(MB) 72,174.2 120,963.8 108,897.3 155,974.7 2.9% 5.3% 2.1% 5.3%
Final Oil
Consumption 61,543.5 100,286.8 92,275.0 157,845.1 3.5% 5.0% 3.2% 8.0%
(MB)
Self Sufficiency 60.7 49.4 59.7 50.9 -0.7% -2.0% -0.9% -2.3%
GHG Emission
per oil 2.3 2.5 2.5 2.5 1.3% 0.6% -0.1% -0.4%
consumption
Source: Department of Energy (Note: MB stands for Million Barrels)
In the Philippines, oil exploration began nearly 100 years ago, but it was only in 1975,
under a newly introduced service contract system, when the first significant oil find was made.
With full government support, two other oil fields were subsequently put on stream, which, at its
peak supplied 20 percent of the national daily crude requirement. In 1995, however, the country's
oil production dwindled to a dismal 800 bbls per day, equivalent only to 0.2 percent of our daily
needs.
Several factors contributed to the current poor performance of the oil sector, foremost
among which is the drop in financial support from the capital market. Only sustained investment
in this capital-intensive business can lead to the discovery and development of new oil fields.
As shown in Table 1. in the last 27 years the average oil consumption is at 3.5 percent
which is .6 percent higher than our oil supply. However, based from the numbers the country’s

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total primary oil supply is projected to grow by 3.4 percent per year on average in the business as
usual (BAU) scenario, it will continue to contribute significantly to the country’s total energy
mix.
Also as shown in Table 1. In the last 7 years, self-sufficiency of oil has significantly
suffered and dropped to a -3.2 percent. This is a representation that the Philippines does not have
the ability to maintain sufficient oil supply to meet the its demand and consumption.
The Philippines relies heavy on oil imports to meet its domestic demand. Given the
economy’s limited oil resources, dependency on crude import is high, almost 100%, to meet its
refinery demand.
In an depth report by the Department of Energy, during 2017 of December, crudes and
petroleum products inventory was marked at 20,363 (MB) in comparison with its previous year,
it was lower by 1.8 percent from December 2016’s mark which was 20,742 (MB).
Additionally, the 20,363 (MB) of December 2017 equates to a 46-day supply.(analysis)
Looking at the brighter side, the Philippines has done its job to lower GHG emissions throughout
the last 7 years and the 17 years; only posting an average of -0.1 percent for 2010-2017 and -0.4
percent 2000 to 2017 of GHG emissions.
One of the actions taken in order to clean the environment was to enact the Biofuels Act
of 2006 and Renewable Energy Act of 2008. Both of these laws were part of the Philippine
Energy Plan as it was made to contribute significantly in cleaning the country’s environment. It
was also implemented to pursue energy sufficiency and security by encouraging the development
and use of alternative energy resources.

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Figure 3. GHG Emission per oil consumption chart
source: Department of Energy

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The Diesel Price Situation from 1990 to 2017
Table 2. Diesel Demand and Prices

Indicators 1990 2000 2010 2017 1990- 1990- 2000- 2010-
2017 2000 2017 2017
Diesel Prices 6.0 12.2 34.2 32.1 6.4% 7.4% -0.4% -0.9%
Diesel Demand 3,006.3 5,412.0 5,584.8 8,611.8 4.0% 6.1% 2.6% 6.4%
(KTOE)
Biodiesel 0.0 0.0 110.2 169.9 0.0% 0.0% 2.6% 6.4%

Demand
(KTOE)
Source: Department of Energy (Note: KTOE stands for Kilotonne of Oil Equivalent)
As shown in Table 2. Biodiesel demand officially started at year 2007, hence, the 0.0%
demand for years 1990 to 2000. In addition to that blend rates are too small to be reflective in the
past 17 or 7 years. However, the average blend rate for 2010 was at 2.0 percent meanwhile
2017’s blend rate average at 1.97 percent which was rounded off to 2.0 percent at the table.
However, in the last 27 years the demand for diesel in the Philippines has been steadily growing
at 4.0%. The diesel demand started at 3,006.3 KTOE and is now up to 8,611.8 KTOE.
Furthermore, diesel demand is interrelated with the biodiesel demand as presented in
Table 2. Diesel and Biodiesel demand is the same in the last 17 years. This is due to the fact that
biodiesel demand cannot be separated with diesel demand as R.A. 9367 mandates that all fuel
companies must add biodiesel blends at 5 percent.
The demand for diesel is trending upward since there are more diesel owned cars on the
roads. Since consumers prefer diesel powered vehicles because prices of diesel fuel is much
cheaper compared to gasolines or ethanol fuel. If the government can implement policies that

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could increase blend rates, we are able to see an higher and more upward trend for demand for
both biodiesel and diesel fuel.
Most oil companies do not apply uniform prices across the country. It is important to note
that geographical variation in prices Is largely due to differences in transportation costs of
supplying the areas. However, the geographical pockets, however, prices tend to be uniform due
to competition.
The trend of increasing fuel prices affects consumers, when fuel prices increase, a larger
share of households’ budgets is likely to be spent on it, which leaves less to spend on other goods
and services. The same goes for businesses whose goods must be shipped from place to place or
that use fuel as a major input (such as the airline industry). Higher fuel prices tend to make
production more expensive for businesses, just as they make it more expensive for households to
do the things they normally do.

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Figure 4. Diesel price chart
Source: Department of Energy

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The Biodiesel Supply Situation in the Philippines from 1990 to 2017
Table 3. Biodiesel supply

Year Biodiesel % Growth Blend Rate
BBL
2003 56.12 0.00 %
2004 628.36 1019.7% 0.00 %
2005 852.01 35.6% 0.00 %
2006 4,115.26 383.0% 0.01 %
2007 308,853.23 7405.1% 0.59 %
2008 413,026.15 33.7% 0.98 %
2009 858,660.27 107.9% 1.97 %
2010 777,101.35 -9.5% 1.97 %
2011 773,431.93 -0.5% 2.01 %
2012 864,684.84 11.8% 1.97 %
2013 959,217.10 10.9% 1.97 %
2014 1,026,487.41 7.0% 1.97 %
2015 1,261,489.71 22.9% 1.97 %
2016 1,369,016.41 8.5% 1.96 %
2017 1,373,337.20 0.3% 1.97 %
Source: Department of Energy (Note: BBL stands for Billion Barrels)
The Biofuel Act of 2006 was signed into law on July 24, 2006. It was the first biofuel act
ever mandated in South East Asia; stating that within the first two years of the act, it would meet
the demands of at least 5 percent of bioethanol and 2 percent of biodiesel blends. For diesel
blends, it utilized a one percent coco methyl ester (CME) blend that took effect within the three
months of the law’s effectivity on February 2007. Thus, we can see that from 2006 to 2007 there
was a sudden surge of demand for biodiesel. Base from the Table.3 the 7405.1 percent increase

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can be attributed to the effects of mandating fuel companies to add coco methyl ester (CME)
blends in their diesel fuel.
However, one fuel company started using biofuel blends even before Biofuel Act of 2006
was a law. The Sea-oil company started blending biofuels into their fuels, two years before the
act was fully implemented and massively felt by other fuel companies. During 2007 up to 2009,
these were the stronger years and production of coco-methyl esters since the Philippines were at
the top of producing coconut oil (CNO) in the world at that time.
From 2007 at 308,853.23 (BBL) the biodiesel demand grew to 413,026.15 (BBL) during
2008 which is a 33.7 percent increase. Furthermore, looking at the Table.3 there was an even a
higher demand during 2009 at 858,660.27 (BBL). To analyze the numbers, biodiesel production
in 2009, which uses coconut as feedstock, was more than 1,000 times and almost three times
larger than the 2004 and 2007 levels, respectively.
In relation to the surging demand between those years were twelve bio-diesel refineries
and plants that annually produced 395 million liters. Furthermore, during 2009 the DOE even
considered exporting CME and increase blends up to 3%. The consideration of exportation and
blend increase was due to the capacity of the Philippines to produce surpluses of CME. In
addition to that, local coconut oil refiners tried to talk the government of increasing blends up to
five percent to match with international standards.
Referring to Table 3. Biodiesel demand after a decrease in demand in 2010 and 2011,
biodiesel demand grew once again at 2012 and steadily trended upward at average growth of
10.23 percent in the last five years. The biggest growth was during 2015 because the government

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was preparing its capacity to raise the blend from 2 percent to 5 percent to match the mandated
blend requirement (which did not happen). Additionally, R.A. 9367 disallows biodiesel
importation and with the surging local biodiesel production 2015 reached 22.9% growth.
Despite the current continuous growth and trend, the biodiesel blend rate hasn’t reached
its full potential and the mandated amount of 5 percent. Since RA 9367’s full implementation in
2006, the blend rate only averages at 1.61percent. Thus, higher blend rate targets in the future
would seem impossible to accomplish since reaching the 5 percent blend rate target was already
hard enough. Reaching the 20 percent blend rate for biodiesel in 2020 would be demanding and
too tall of a task.
Figure 5. Biodiesel Demand

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The Trend Oil Prices vis-a-vis Dubai Crude and Forex movements from 1990 to 2017
Table 4. Dubai Crude and Forex

Indicators 1990 2000 2010 2017 1990- 1990- 2000- 2010-
2017 2000 2017 2017
Dubai Crude 20.7 26.1 78.1 53.1 3.5% 2.3% -2.2% -5.3%
($/BBL)
Forex 28.0 50.0 43.9 49.9 2.2% 6.0% 0.8% 1.9%

Source: World Bank
Oil price increases are generally thought to increase inflation and reduce economic
growth. In terms of inflation, oil prices directly affect the prices of goods made with petroleum
products. Oil prices indirectly affect costs such as transportation, manufacturing, and heating.
The increase in these costs can in turn affect the prices of a variety of goods and services, as
producers may pass production costs on to consumers. The extent to which oil price increases
lead to consumption price increases depends on how important oil is for the production of a
given type of good or service.
Based from Table. 4 and history, the price of crude oil spiked in 1990 with the lower
production, uncertainty associated with the Iraqi invasion of Kuwait and the ensuing Gulf War.
The world and particularly the Middle East had a much harsher view of Saddam Hussein
invading Arab Kuwait than they did Persian Iran. The proximity to the world's largest oil
producer helped to shape the reaction. Following what became known as the Gulf War to liberate
Kuwait, crude oil prices entered a period of steady decline. In 1994, the inflation adjusted oil
price reached the lowest level since 1973.

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From 1990 to 1997, world oil consumption increased 6.2 million barrels per day. Asian
consumption accounted for all but 300,000 barrels per day of that gain and contributed to a price
recovery that extended into 1997. The price increases came to a rapid end in 1997 and 1998
when the impact of the economic crisis in Asia was either ignored or underestimated by OPEC,
however, prices began to recover during 1999.
It was on July 21, 2006 when the local currency hit the P52.16 to $1 territory. Pressured
by a record trade deficit, the local currency closes at P52.12 against the US dollar on
Wednesday, February 14, its weakest since July 2006. The current trend in the Philippines is that
peso is weaker compared to the US dollar. This does not help in importing crude oil into the
country as the government buys them now in much higher price.

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The Coconut Demand and Supply situation from 1990 to 2017
Table 5. Coconut Demand and Supply

Indicators 1990 2000 2010 2017 1990- 1990- 2000- 2010-
2017 2000 2017 2017
SU Gross Supply 11.9 13.0 15.5 14.0 0.6% 0.8% -0.6% -1.4%
(MMT)
UT Exports (MT) 1,220.0 1,581.0 2,449.0 1,334.0 0.3% 2.6% -3.5% -8.3%
UT Net 11.9 13.0 15.5 14.0 0.6% 0.8% -0.6% -1.4%

Disposable
Supply (MMT)
UT Per Capita 26.6 23.2 23.0 18.3 -1.4% -1.3% -1.3% -3.2%
gm/day
Farmgate Prices 2.42 1.98 5.34 8.62 4.8% -2.0% 2.9% 7.1%
Source: Country Stat Philippines (PSA) (Note: MMT stands for Million Metric Tons)
The gross supply has an upward trend in the last 27 years, however, in the last 17 years it
has declined due to global copra prices and weaker production. As shown in Table 5. despite its
exportation decline in the last 7 years, the Philippines according to the Department of
Agriculture and Sec. Piñol said that coconut will be exported to the US as a high value product
since it has carved a market for its health-conscious consumers there.
Table 5 also shows that farmgate prices of coconut, we can see that the fluctuation of
domestic copra price is cyclical since domestic copra price is dependent to the coconut oil price
in the global market. The global coconut oil price on the other hand is determined or affected by
the supply and demand situation of other vegetable oils (e.g. oil palm, soybean, rapeseed,
sunflower, olive oil, etc.)

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Though the Philippines is the biggest exporter of coconut oil in the world, coconut oil is
just one of the many vegetable oils produced in the world. As such, its price is greatly affected
by the movement of prices of other vegetable oils particularly the palm oil which is the biggest
among the internationally traded vegetable oils (35%), and soybean oil, the second biggest
vegetable oil (29%).
The price of palm oil in the world market has been going down since December 2017. At
present, the world market price is 623.50 USD/MT. This commands the price of coconut oil and
other vegetable oils in the world market. If we convert this price to Philippine peso/kilogram
using the current peso-dollar exchange rate of P52.00, this is only P32.42/kg. This explains the
downward trend and very low price of copra as companies using vegetable oils will buy more
palm oil if the supply is high and the price is low. But as the supply of palm oil will go down,
prices of vegetable oils will again go up.
Figure 6. Coconut Farmgate Prices

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The dynamic relationship among trends of biodiesel demand, energy and greenhouse gas
emissions per oil consumption, diesel prices and coconut farmgate prices
Pre-Tests of Data
Unit Root Test. It is important to note that before anything else it is absolutely necessary
to have examine the series if it has unit roots and determine the degree of integration. The ADF
unit root test is frequently used test for stability analysis of the series. The ADF results is
presented in the appendix A of the study. Based from the initial results of the Augmented
Dickey-Fuller (ADF) unit root test all variables have unit root in 1 level. Therefore, the data it is
st
non-stationary which suggests unreliability due to the unpredictable movements of the dataset.
The H0 hypothesis, established as "unit root" in the level values of the variables, was not
rejected, and thus was accepted. In this case, the first difference of the series should be taken and
the unit root entity should be tested. Using the 1st difference showed that it is seen that all of
them become stationary, in other words, the hypothesis H0 which is formed as "unit root" is
rejected.

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Engle-granger Cointegration Test.
Table 6. Engle-Granger Cointegration Test Results

Testing For Unit Root Asymptotic P-Value Remarks
Biodiesel 0.1203 There is Unit Root (non-stationary)
Diesel Price 0.001828 There is No Unit Root (stationary)
Farmgate Prices 2.28E-10 There is No Unit Root (stationary)
GHG Emission 0.0005692 There is No Unit Root (stationary)
Residuals (uhat) 0.8446 There is Unit Root (non-stationary)
The two conditions: 1 ) not rejecting the unit-root hypothesis of individual variables and
2) rejecting the unit-root hypothesis for the residuals must be both satisfied to prove that no co-
integration exists based on the asymptotic p-values. Given p-values higher than 0.05, the unit
root hypothesis, which assumes no cointegration, for individual variables and residuals are not
rejected. Thus, there is no cointegration among the variables.

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Vector Autoregression Specifications
In order to perform the Vector Autoregressive Model (VAR) analysis, it is necessary to
determine the most appropriate lag length. Autocorrelation and heteroscedasticity pre-tests
should be performed on the determined VAR model after determining the appropriate lag length.
Autocorrelation Results
Table 7. Test for Autocorrelation

Test For Autocorrelation of Order up to 1
Rao F Approx Dist. P-Value

Lag 1 1.128 F(16, 28) 0.3783
Autocorrelation is a matter of degree, so it can be positive as well as negative. If the
series (like an economic series) depicts an upward or downward pattern, then the series is
considered to exhibit positive autocorrelation. If, on the other hand, the series depicts a constant
upward and downward pattern, then the series is considered to exhibit negative autocorrelation.
Therefore, as results shown by Table 7. there is no autocorrelation present.

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ARCH Results
Table 8. Test For ARCH

Test For ARCH of Order up to 1
LM df P-Value
Lag 1 137.333 100 0.0079
The ARCH effect is concerned with a relationship within the heteroskedasticity, often
termed serial correlation of the heteroskedasticity. It often becomes apparent when there is
bunching in the variance or volatility of a particular variable, producing a pattern which is
determined by some factor. Table 8 shows that there is No ARCH effect is present thus we
accept.
Doornik-Hansen Results
Table 9. Doornik Hansen Test

Doornik-Hansen Test
Chi-square (8) = 10.2111 (0.2505)
The Doornik-Hansen test for multivariate normality (Doornik and Hansen 2008) is based
on the skewness and kurtosis of multivariate data that is transformed to insure independence.
Based from the results of table 9 residuals are multivariate normal.

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Lag Order Results
Table 10. Test for Lag Order

Var System, Maximum Lag Order 2
The asterisks below indicate the best (that is, minimized) values of the respective information
criteria, AIC = Akaike criterion, BIC = Shwarz Bayesian criterion and HQC = Hannan-Quinn
criterion
Lags loglik p(LR) AIC BIC HQC
1 -83.53368 9.242694 10.802855 9.675416
2 -50.51761 0.00000 7.881409* 10.221651* 8.530493*
When creating a VAR model, identifying the proper lag length is very important. The
right lag length not only ensures the parameters in the VAR model have a strong explanatory
power, but also that they maintain a balance with the degrees of freedom. In this paper, we
choose optimal lag order as dictated by the sequential modified likelihood ratio test statistic
(LR), Final prediction error (FPE), Akaike criterion (AIC), Shwarz Bayesian criterion (SC) and
Hannan-Quinn (HQ) information criterion. As seen in Table 10, the result shows that the optimal
lag order for model is best optimized at 2 lags. The lag order of 1 suggests that the prediction for
the current values of the dependent variables are based on both the current values and the lagged
values of one period of the independent variables.
AIC is an estimate of a constant plus the relative distance between the unknown true
likelihood function of the data and the fitted likelihood function of the model, so that a lower
AIC means a model is considered to be closer to the truth. BIC is an estimate of a function of the
posterior probability of a model being true, under a certain Bayesian setup, so that a lower BIC
means that a model is considered to be more likely to be the true model. Both criteria are based
on various assumptions and asymptotic approximations.

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Vector Autoregression Model.
Table 11. Var Model (biodiesel)
Equation 1: d_Bio_Diesel
Coefficient Std. Error t-ratio p-value
const −0.109161 0.248745 −0.4388 0.668
d_Bio_Diesel_1 0.465691 0.31511 1.478 0.1633
d_Bio_Diesel_2 0.463917 0.281286 1.649 0.123
d_Diesel_Price_1 0.133673 0.0582429 2.295 0.039**
d_Diesel_Price_2 0.0663612 0.0676251 0.9813 0.3444
d_GHG_1 1.58026 1.16047 1.362 0.1964
d_GHG_2 0.995602 1.17065 0.8505 0.4105
d_Coconut_FGP_1 0.0851105 0.186308 0.4568 0.6553
d_Coconut_FGP_2 0.0520102 0.158847 0.3274 0.7486
d_Self_Sufficiency 0.0616433 0.0596128 1.034 0.32
d_Dubai −0.0494940 0.0117246 −4.221 0.001***
d_Forex −0.000615000 0.0426047 −0.01444 0.9887
Mean dependent var 0.549335 S.D. dependent var 1.158549

Sum squared resid 7.011172 S.E. of regression 0.734385
R-squared 0.782354 Adjusted R-squared 0.598192
F(11, 13) 4.248186 P-value(F) 0.007952
rho 0.090856 Durbin-Watson 1.809151
F-tests of zero restrictions:
All lags of d_Bio_Diesel F(2, 13) = 7.3208 [0.0074]
All lags of d_Diesel_Price F(2,13) = 7.2043 [0.0078]
All lags of d_GHG F(2, 13) = 0.95221 [0.4112]
All lags of d_Coconut_FGP F(2, 13) = 0.13722 [0.8730]
All vars, lag 2 F(4, 13) = 0.88632 [0.4991]
The contribution of the Biodiesel demand and other endogenous variables is presented in
Table 11. Based from the VAR Model (Biodiesel demand), the variables are all in their 1st
difference or lagged form. The VAR Model (Biodiesel demand) includes all exogenous variables
and endogenous variables that affect Biodiesel demand in the Philippines. It is observed that the

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F-statistic value associated with p-value ensures the significance of the model. Moreover, 78.23
percent of biodiesel demand’s variation is explained by the diesel price, which represents the
important role of biodiesel in the reduction of diesel prices. Based from the results of the P-
value, diesel price is significant and positively impacting diesel demand. Therefore, when diesel
prices increase the demand for biodiesel also increases.

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Table 12. VAR Model (Diesel Price)
Equation 2: d_Diesel_Price
const 1.25559 0.543372 2.311 0.0379 **
d_Bio_Diesel_1 0.803853 0.688342 1.168 0.2639
d_Bio_Diesel_2 −1.42782 0.614455 −2.324 0.037 **
d_Diesel_Price_1 0.019964 0.127229 0.1569 0.8777
d_Diesel_Price_2 −0.358632 0.147724 −2.428 0.0305 **
d_GHG_1 0.224232 2.53499 0.08845 0.9309
d_GHG_2 3.1319 2.55723 1.225 0.2424
d_Coconut_FGP_1 −0.467076 0.406981 −1.148 0.2718
−0.084466
d_Coconut_FGP_2 0.346993 −0.2434 0.8115
7
0.025611 <0.000 **
d_Dubai 0.332219 12.97
9 1 *
−0.074642 0.093067
d_Forex −0.8020 0.437
5 9
Adjusted R-
R-squared 0.959447 squared 0.925133
F(11, 13) 27.96069 P-value(F) 3.11e-07

All lags of d_Diesel_Price F(2, 13) = 4.3674 [0.0354]
All lags of d_GHG F(2, 13) = 0.91243 [0.4258]
All lags of d_Coconut_FGP F(2, 13) = 0.6602
[0.5332]
All vars, lag 2 F(4, 13) = 2.4992 [0.0939]
According to the results of the Var Model (Diesel Prices) in Table 12, it is observed that
the F-statistic value associated with p-value ensures the significance of the model. Moreover,
95.94 percent of diesel prices’ variation is explained by the biodiesel demand, which represents
how diesel prices are impacted by biodiesel demand. Based from the results of the P-value,

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biodiesel demand is significant and negatively impacts diesel prices. Therefore, when diesel
prices increase the demand for biodiesel also increases. These two endogenous variables can be
concluded as bi-directional as they impact one another.

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Table 13. VAR Model (GHG Emissions per oil consumption)
Equation 3: d_GHG

const 0.135826 0.0572697 2.372 0.0338 **
d_Bio_Diesel_1 0.0389837 0.0725492 0.5373 0.6001
d_Bio_Diesel_2 −0.0962935 0.0647617 −1.487 0.1609
d_Diesel_Price_1 0.00375688 0.0134095 0.2802 0.7838
d_Diesel_Price_2 −0.0415725 0.0155696 −2.670 0.0193 **
d_GHG_1 −0.520487 0.26718 −1.948 0.0733 *
d_GHG_2 −0.315754 0.269524 −1.172 0.2624
d_Coconut_FGP_1 −0.0328268 0.0428946 −0.7653 0.4578
d_Coconut_FGP_2 0.0629389 0.036572 1.721 0.109
d_Dubai −0.000645668 0.00269941 −0.2392 0.8147
d_Forex 0.000731381 0.00980908 0.07456 0.9417
F(11, 13) 1.807828 P-value(F) 0.154286
rho −0.294163 Durbin-Watson 2.303953

All lags of d_GHG F(2, 13) = 1.9336 [0.1840]
All vars, lag 2 F(4, 13) = 2.9162 [0.0634]
According to the results of the Var Model (GHG Emissions) in Table 13, it is observed
that the F-statistic value associated with p-value ensures the significance of the model.
Moreover, 60.46 percent of GHG Emissions’ variation is explained by the diesel prices, which
represents how GHG Emissions are impacted by diesel prices. Based from the results of the P-

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value, diesel price is significant and negatively impacts GHG. Therefore, when diesel prices
increases the GHG emission per oil consumption decreases.

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Table 14. VAR Model Coconut Farmgate Prices
Equation 4: d_Coconut_FGP
const 0.518421 0.212696 2.437 0.0299 **

d_Bio_Diesel_1 −0.00989244 0.269443 −0.03671 0.9713
d_Bio_Diesel_2 0.209141 0.240521 0.8695 0.4003
d_Diesel_Price_1 −0.0889918 0.049802 −1.787 0.0973 *

d_Diesel_Price_2 −0.0391911 0.0578245 −0.6778 0.5098
d_GHG_1 −0.535368 0.992287 −0.5395 0.5986
d_GHG_2 1.04055 1.00099 1.04 0.3175
d_Coconut_FGP_1 −0.349747 0.159307 −2.195 0.0469 **

d_Coconut_FGP_2 −0.442389 0.135826 −3.257 0.0062 ***
d_Self_Sufficiency 0.106805 0.0509734 2.095 0.0563 *
d_Dubai 0.014517 0.0100254 1.448 0.1713
d_Forex −0.0826285 0.0364302 −2.268 0.041 **
F(11, 13) 5.667382 P-value(F) 0.002165

All lags of d_GHG F(2, 13) = 1.2419 [0.3209]
All vars, lag 2 F(4, 13) = 6.9705 [0.0032]
For the system as a whole
Null hypothesis: the longest lag is 1
Alternative hypothesis: the longest lag is 2
Likelihood ratio test: Chi-square(16) = 66.0321 [0.0000]

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According to the results of the Var Model (Farmgate Prices) in Table 14, it is observed
that the F-statistic value associated with p-value ensures the significance of the model.
Moreover, 82.74 percent of coconut farmgate prices’ variation is explained by diesel prices,
which represents how coconut farmgate price are impacted by diesel prices. Based from the
results of the P-value, diesel price is significant and negatively impacts GHG. Therefore, when
diesel prices increases the coconut farmgate price decreases

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Var Inverse Roots
Figure 7. VAR Inverse Roots Results
Figure 7. shows the position of the inverted roots in the unit circle. All of the roots need
to be placed in the unit circle. When the figure is examined, it is obvious that the created model
does not have any problems in terms of stability.

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Impulse Response
In investigating the dynamic relationship between the variables in the estimated VAR
models, the impulse response functions are employed. The impulse response function describes
the changes or responses of an endogenous variable over a specified time horizon to a residual
shock called innovation in a given period. The dynamic impact of the current and future values
of the endogenous variables to a standard deviation shock are also defined.
Figure 8. Impulse Response (Diesel Price to Biodiesel Demand)
As seen in Figure . the impulse response functions from Diesel Price to the Biodiesel
demand suggests that the increase in the Diesel Price in the current period would create a
positive effect towards the demand for Biodiesel. Henceforth, if diesel prices will continue to rise
then the demand for biodiesel will spike at the first period. Furthermore, this positive trend will
be cut and a minimal declination will be experienced starting from the second quarter onwards.
A consumer will find alternative goods or services when prices becomes too expensive for them.
In this case, biodiesel is the cheaper and better option than diesel.

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Figure 9. Impulse Response (Biodiesel Demand to Diesel Price)
Also shown in Figure 9. is the impulse response functions from Biodiesel demand to
Diesel Price. Accordingly, as a result of a shock to the biodiesel demand, the prices of diesel
fluctuates from the current period and would suddenly decline up to the second period. Due to a
shock in the demand for biodiesel, the prices of diesel is affected and is meant to decline due to
the surging of demand for biodiesel.
This is due to the fact that biodiesel and biofuels in general are cheaper than fossil fuels
or any other current used fuel that doesn’t use biodegradable materials. Furthermore, biodiesel is
better for the environment, most consumers are environmentally aware and would want a product
that is clean and green for the environment that they live in.

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Figure 10. Impulse Response (Diesel Price to GHG)
Represented in Figure 10. is the impulse response functions from Diesel Price to
Greenhouse Gas emissions. Accordingly, as a result of a shock to the Diesel Price, the
greenhouse gas emissions per oil consumption declines from the current period and this
downward trend continues until the 2nd period. However, GHG emissions rises up again during
the 3rd period but will immediately fall on the 4th period and will continue to decline until the
8th period.
This result shows that when diesel price would increase then GHG emissions per oil
consumption would decline. If there are higher fuel prices then consumers would tend to find
alternative transportation or turn to consume biofuels.

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Variance Decomposition.
After performing impulse-response analyses in VAR models, variance decomposition
analysis is conducted. In this analysis, the source and rate of change are expressed both in
themselves and in other variables. In other words, the analysis of the effect of the source of
change for each variable over time is performed through this analysis. The variance
decomposition of VAR can be used to analyze the different contributions of structural shocks
that affect the endogenous variables. By investigating the proportion of the error variance which
is accounted for by each of the factors, the relative importance of the electronics industry
performance and linkages can be obtained. A 10-quarter period is chosen to represent the
variance decomposition in the short term as well as in the long term.
Table 15. Variance Decomposition Diesel Price
Decomposition of variance for Diesel Price

period std. error d_Diesel_Price d_Bio_Diesel d_GHG d_Coconut_FGP
1 1.15682 75.1423 24.8577 0 0
2 1.22355 67.212 30.0544 0.1856 2.5479
3 1.46563 50.4313 34.8746 12.7794 1.9146
4 1.53306 46.0951 31.97 20.1416 1.7932
5 1.58211 44.7295 32.6469 20.2817 2.3418
6 1.59973 43.7609 33.4837 19.8377 2.9178
7 1.60759 43.5026 33.1882 20.2197 3.0895
8 1.6118 43.29 33.3087 20.1154 3.2858
9 1.6133 43.2193 33.3695 20.0807 3.3304
10 1.61485 43.1894 33.4249 20.0445 3.3412
The results of the forecast error variance decomposition show the proportion of the
changes in a variable derived from its own shocks versus shocks to other variables. Table 11 –

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report the variance decomposition for diesel price, biodiesel, GHG, coconut farmgate prices over
the 10-period horizon based on the VAR model. The performance of the diesel price is the major
contributor in the variability of biodiesel demand. It accounts for 33 percent of the forecast error
variance in an average of 10 quarters. For the fifth period, it explains 33 percent of the forecast
error variance was maintained in the long run. However, it has been observed that the
contribution of the GHG in the forecast error variance is in a increasing manner with 12 percent
in the short term and 20 percent in the long term; As coconut farmgate prices in the forecast error
variance is in a increasing manner with small increments of 2 percent in the short term and 3
percent in the long term.
Table 16. Variance Decomposition Biodiesel
Decomposition of variance for Biodiesel

1 0.529572 0 100 0 0
2 0.586549 3.7534 86.5459 9.3325 0.3681
3 0.695133 5.1577 85.4653 9.0154 0.3616
4 0.734042 4.6994 81.9909 12.8007 0.509
5 0.760588 4.4584 81.5582 13.4056 0.5778
6 0.773215 4.3149 81.8531 13.212 0.6199
7 0.781218 4.232 81.656 13.4659 0.6462
8 0.787514 4.2421 81.7113 13.4107 0.6359
9 0.792152 4.2271 81.646 13.4833 0.6436
10 0.795324 4.2186 81.5671 13.5706 0.6437
The results of the forecast error variance decomposition show the proportion of the
changes in a variable derived from its own shocks versus shocks to other variables. Table 12 –
report the variance decomposition for diesel price, biodiesel, GHG, coconut farmgate prices over

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the 10-period horizon based on the VAR model. The performance of the biodiesel is the major
contributor in its own variability. In the first period, it accounts for 100 percent of error variance
in an average of 10 quarters. Furthermore, the trend of the GHG is the major contributor to
Biodiesel. In the fifth period, it accounts for 13.4 percent of error variance in an average of 10
quarters and didn’t increase in the long run.
Table 17. Variance Decomposition for GHG
Decomposition of variance for GHG

1 0.529572 0.121926 2.1006 6.6677 91.2317
2 0.586549 0.139735 2.1182 9.7847 87.1322
3 0.695133 0.14882 5.3626 10.1232 76.8252
4 0.734042 0.150569 5.2391 10.8116 75.0887
5 0.760588 0.151462 5.1951 10.8417 74.6348
6 0.773215 0.152274 5.364 10.9017 73.9364
7 0.781218 0.152395 5.3667 10.9384 73.8597
8 0.787514 0.152724 5.4803 10.9661 73.7349
9 0.792152 0.152771 5.4924 10.9602 73.7245
10 0.795324 0.152854 5.4882 10.9485 73.734
The performance of the GHG is a major contributor in to the variability of Coconut
farmgate prices. In the first period, it accounts for 91 percent of error variance in an average of
10 quarters. However, the trend of the coconut farmgate is declining from 91 percent in the first
period to 75 percent in the fifth and 74 percent in the last period. In the fifth period, Biodiesel
accounts for 5 percent of error variance in an average of 10 quarters and didn’t increase in the
long run.

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Table 18. Variance Decomposition for coconut FGP
Decomposition of Variance
period std. error d_Diesel_Price d_Bio_Diesel d_GHG d_Coconut_fGP
1 0.452824 3.8027 9.345 0.0000 86.8523
2 0.490607 8.3275 8.0488 1.5856 82.0382
3 0.539833 8.2107 6.7125 11.1947 73.8821
4 0.585134 13.0871 8.5807 12.8860 65.4462
5 0.590422 12.942 9.0547 12.6737 65.3295
6 0.608988 12.5539 8.6624 15.1894 63.5943
7 0.613548 12.6529 9.49 15.2008 62.6564
8 0.617542 12.5034 9.4533 15.0306 63.0126
9 0.618788 12.5172 9.4155 15.1361 62.9312
10 0.619581 12.4853 9.4461 15.1247 62.9439
The performance of the GHG emissions is a major contributor in to the variability of
coconut farmgate prices. In the fifth period, it accounts for 12.67 percent of error variance in an
average of 10 quarters. However, the trend of the GHG would increase in the 10th period at 15
percent. Furthermore, diesel price significantly increase in its fourth period, and continues its
steady pace until the 10th period.

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Granger Causality.
Table 19. Granger Causality Results
Null Hypothesis (Ho) F - Stat P value Conclusion

Biodiesel Does not Granger Cause There is an evidence to
Biodiesel Diesel Price 7.2043 0.01
Diesel Price reject Ho
Farmgate Biodiesel Does not Granger Cause There is no Evidence to
0.13722 0.873
Prices Farmgate Prices reject Ho
GHG Biodiesel Does not Granger Cause There is no Evidence to
0.95221 0.4112
Emission GHG Emission reject Ho
Diesel Price Does not Granger Cause There is no Evidence to
Diesel Price Biodiesel 2.8292 0.0955
Biodiesel reject Ho
Farmgate Diesel Price Does not Granger Cause There is no Evidence to
0.6602 0.5332
Prices Farmgate Prices reject Ho
GHG Diesel Price Does not Granger Cause There is no Evidence to
0.91243 0.4258
Emission GHG Emission reject Ho
Farmgate Farmgate Prices Does not Granger There is no Evidence to
Biodiesel 0.64218 0.542
Prices Cause Biodiesel reject Ho
Farmgate Prices Does not Granger The is an evidence to reject
Diesel Price 4.116 0.0412
Cause Diesel Price Ho
GHG Farmgate Prices Does not Granger There is no Evidence to
1.2419 0.3209
Emission Cause GHG Emission reject Ho
GHG GHG Emission Does not Granger There is no Evidence to
Biodiesel 1.2895 0.3084
Emission Cause Biodiesel reject Ho
GHG Emission Does not Granger The is an evidence to reject
Diesel Price 5.0398 0.024
Cause Diesel Price Ho
Farmgate GHG Emission Does not Granger There is no Evidence to
2.0426 0.1693
Prices Cause Farmgate Prices reject Ho
The Granger causality test is used primarily to determine whether there is an association
between two variables and to analyze whether the relationship is unidirectional or bidirectional.
If the P value is greater than 0.05 then there is no evidence to reject the null hypothesis however
if the P value is less than 0.05 then there is an evidence to accept the null hypothesis. According
to the results of the granger causality biodiesel is causally related to diesel price but not causally
related to farmgate prices and GHG emissions. However, diesel prices does not granger cause
biodiesel demand, farmgate prices, GHG emissions. Lastly, GHG emissions and Farmgate

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prices both are causally related to diesel prices because their P-values are 0.0412 and 0.024,
respectively.
Figure 11. Direction of Effects
From the results of the granger causality and VAR model, the researcher was able to
come up with the direction of effects for the variables. Base from the loop, if diesel prices
increase the demand for biodiesel would increase also. It is because consumers are now starting
to become more aware of alternative energy and becoming more environmentally conscious with
the products that they’re utilizing. However, we can see that biodiesel demand has an inverse

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relationship with diesel prices. This means that consumers demand for higher blend rates in their
diesel fuel in order to drive down the prices of diesel and reduce the greenhouse gas emissions.
We can also that diesel prices negatively impacts GHG emissions per oil consumption
and coconut farm-gate prices. This could be explained as when diesel prices increase there are
less consumers using diesel fuel which results to lower GHG emissions per oil consumption. On
the other hand, we can see that diesel prices negatively affects the prices of coconuts.
The bi-directional relationship of biodiesel demand and diesel prices are backed up the
studies of Chang & Su, (2010) and Khanna, (2010). Their researches concluded that, if fuel
prices would increase the demand for biofuel would also increase. The current consumers are
now thriftier and more environmentally aware of the benefits and dangers of their product. More
customers would want to buy products that are cheaper and more beneficial to the environment.
Furthermore, Janda & Kristoufek (2018) mentioned these biofuel plans and policies were
rooted from the problems of energy security, high fuel prices, and environmental problems. This
bi-directional relationship also proven by history of biofuel.
Looking back at creation of biofuels, it started when the U.S.A was forced to find ways to
mitigate high fuel prices since some OPEC members stopped exporting oil to the western part of
the world. The environmental benefits were only noticed in the 1980’s when people started
noticing the negative impact of fossil fuels.
One of the goals of the Biofuels Act of 2006 is to mitigate the toxins and pollutions in the
environment. In order for the government to achieve this, it mandated fuel companies to blend
biofuels at a 5 percent rate. Although, it is a small amount compared to the global standards, the

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biodiesel in the Philippines has a great potential to become an effective tool against air pollution
and toxins.
As the results in the GHG emissions per consumption show in the past decade or more,
the greenhouse gases has been reduced and we can attribute it to the Biofuels Act of 2006 and
other environment policies. The negative relationship of fuel prices (with the biodiesel blend)
and ghg emissions per consumption is confirmed by the study of Firoz (2017) and Gheewala
(2013). Both mentioned in their study, that biofuels help reduce air pollution and lowers
emissions of carbon dioxide (CO2). It also affects the consumers as it improves the health of
people by having less pollutants in their environment.
The relationship of fuel prices and agricultural commodities are proven by Zafeiriou &
Arabatzis, et al., (2018) in their study. Their findings confirmed that oil does affect prices of
agricultural products. Furthermore, these products could also vary from the energy markets, to
biofuels markets, and even the domestic agricultural commodities.
Fuel serves as an input to different products so when fuel prices are high, the prices of
products that have use fuel as input tend to rise as well. Henceforth, the relationship of diesel
prices and coconut farmgate prices is establish in the study. It can be deducted that when diesel
fuel prices are low it would reflect lower farmgate prices of coconuts used for agricultural,
domestic, and biofuel products.
This situation is proven by the Department of Energy’s downstream pricing of fuel,
transportation and production costs of commodities are dependent on the prices of fuel since fuel
prices serve as an input to their products.

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Policy Implications
The Biofuels Act Of 2006 aims to develop and utilize indigenous renewable and
sustainably-sourced clean energy sources to reduce dependence on imported oil; mitigate toxic
and greenhouse gas (GHG)emissions; increase rural employment and income; and ensure the
availability of alternative and renewable clean energy without any detriment to the natural
ecosystem, biodiversity and food reserves of the country.
With that being said, biofuels have the potential to mitigate environmental impacts,
improve balance of payments through foreign exchange savings while providing countries with
greater energy security. Understanding who the true winners and losers are is important because
policymakers need to be conscious of what group is bearing the brunt of the cost since it can
result in a burden too heavy for one group to carry.
The government should focus on its economic security since the Philippines is an oil
dependent nation, it does not have large reserves of crude oil. For the country to import the oil
puts a huge dent in the economy. If more people start shifting towards biofuels, the Philippines
can reduce its dependence on fossil fuels. Additionally, more jobs will be created with a growing
biofuel industry, which will keep our economy secure. Furthermore, our policy makers should
create policies that would improve the productivity of farmers. Those policies should focus on
improving their farming techniques and technologies, it should help farmers prepare for climate
change and different calamities, and finally subsidizing equipment for farmers.
While biodiesel tries to reduce the nation’s dependence on fossil fuels, the results show
that it will take a long time to solve our energy needs. As prices of crude oil is touching sky high,

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we need to strengthen our country’s alternative energy solutions to reduce our dependence on
fossil fuels.
Strengthen environmental policies and make fuel companies and manufacturing companies
be more accountable with the environmental damages that they cause. Companies that harm the
environment should pay for the damages that they cause through taxation or fines.
We all know that when fossil fuels when burnt can produce large amount of greenhouse
gases. These greenhouse gases trap sunlight and cause planet to warm. The burning of coal and
oil increases the temperature and causes global warming. To reduce the impact of greenhouse
gases, people should starting using more biofuels.

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CHAPTER VI
CONCLUSION
S AND
CONCLUSIONS AND RECOMMENDATIONS
RECOMMEND
ATIONS
Summary of the Study
As the world continue to revolve so will our consumption for oil and fuel, although a part
of the supply of oil can be renewed and its depletion can be prolonged with the present
technology we have. Sadly, most of man’s current goods and services uses oil as an inputs to
production so whenever prices of oil increases it impacts the production of a good or service.
Another problem we face is the rise of GHG emissions due to oil consumption however there are
some short and long term solutions for it, such as reducing consumption or utilizing alternative
fuels and energy.
The government is aware of these problems and that’s solutions like biofuels and
alternative fuels are implemented to reduce dependence on imported oil, mitigate toxic and
greenhouse gas (GHG)emissions that we have. Laws such as Biofuels Act of 2006 is
implemented so that biofuel blends are integrated in our fuels.
The government’s biofuel plan shows its potential since the trend of GHG in the last 7
years have lowered by 0.4 percent and in the last 17 years was lowered by 0.1 percent. These are
small numbers but nonetheless these decreases still account for something. However, the
Philippines is not self-sufficient, according to the results and data that the researcher have
gathered self-sufficiency have dropped by 3.2 percent.

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Those numbers are also related to the prices of diesel and the demand for biofuel. As a
whole trend in the last 27 years the prices of diesel have been trending upward by 6.4 percent.
However, looking at the past 7 years and with the stronger biofuel implementation and drive
prices have been driven down to 0.9 percent.
The Biofuel Act of 2006 has its targets which are to increase blends from 2 percent to 3
percent after 2 years of its implementation. In addition to that, the government planned that in
2015 the biofuels in the Philippines will reach the minimum global standards of 5 percent and
soon in 2020-2025 targets around the world are at 20 percent.
Ever since the implementation of the Biofuels Act of 2006, the demand and blend rate for
biodiesel are constantly trending upwards. Despite the upward trend, the government failed to
reach the 5 percent blend goal in 2015 which makes reaching future targets like 20 percent a very
hard task to accomplish. However, the government has been trying to push biofuels harder in the
last 7 years as the trend increase by 6.4 percent.
Philippines is the biggest exporter of coconut oil and soon enough coconut oil could be
exported to the US as a product with high value as consumers in the US are becoming more
health conscious. The gross supply is trending upward by 0.6 percent in the last 27 years but
there is a recent decline in the last 7 years by 1.4 percent. However, despite the recent decline in
the world market prices for coconut (copra) there is still a 7.1 percent growth in the farmgate
prices in the last 7 years and 2.9 percent in the last 17 years.
International movements of Dubai crude oil and Forex also have an impact to the prices
of fuel here in the Philippines. Especially, when the Philippines is importing fuel, the exchange
of dollars and pesos have a big role and so does prices of crude oil in Dubai. The recent trends

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show that in the last 7 years Dubai Crude have declined by 5.3 percent and Forex went up 1.9
percent. However, the current trend of the weaker peso compared to the US dollar is becoming a
burden for importing oil which causes higher prices of oil and fuel.
Since the study revolves around these variables, the researcher utilized a vector
autoregression approach to show how significant the relationships of energy and greenhouse gas
emissions, diesel prices, biodiesel demand, and coconut farmgate prices. Through the ADF-Test,
the researcher used the 1st difference of the selected variables. The researcher also saw that
biodiesel demand and diesel prices have a bi-directional causal relationship and that diesel prices
have negative causal relationship to GHG emissions and Coconut Farmgate Prices.
The biodiesel demand reacted positively to the shock of diesel prices meanwhile GHG
gas emissions shock demand for biodiesel positively. However, when GHG was shocked by
diesel price, the results show it declined.
With that being said, the government should focus on three things on their polices. First
would be the agricultural support in the coconut sector and coconut farmers so that economic
security can be ensured. Second, is strengthening the alternative energy by having more
researches and studies about its effects and impacts. Lastly, enforce and improve environmental
policies and make companies and people accountable to the damages they have done.

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Summary of Findings
Base from the results of the Granger Causality, Biodiesel does not have causal
relationship with diesel price however there is an evidence to reject the null hypothesis.
Although, there was no evidence to reject the null hypothesis on the relationship of biodiesel to
coconut farmgate prices, and GHG emissions.
As the results show, diesel price does not have a causal relationship with biodiesel
demand, coconut farmgate prices, and GHG emissions. It was also concluded that there was no
evidence to reject the null hypothesis.
Additionally, farmgate prices have a causal relationship with diesel price because there
was an evidence to reject the null hypothesis however there was no evidence to reject the null
hypothesis of farmgate prices having no causal relationship with biodiesel demand and GHG
emissions.
Furthermore, GHG emissions does have a causal relationship with diesel price but there
was no evidence to reject the null hypothesis of GHG emissions having no causal relationship
with biodiesel demand and GHG emissions.

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Conclusions
The significant variables that are related with each other are biodiesel demand and diesel
prices that are bi-directional with each other. We can see that when diesel prices increase there
would also be an increase in the demand for biodiesel. However, biodiesel demand is negatively
related to the diesel price since consumers demand for higher blend rates in their diesel fuel in
order to drive down the prices of diesel.
There are increasing environmentally conscious consumers out there that want to protect
the environment and want cheaper fuel to drive every day. Another significant relationship is the
GHG emissions per oil consumption and prices of diesel. If diesel prices goes up or trends
upward, there are less consumers in the market willing to use diesel fuel. Lastly, diesel prices
negatively affects the prices of coconuts.
The results of the study are consistent with the conclusions and results of the studies of
Gheewala, Damen, & Shi (2013), Firoz (2017), Khanna (2010), and Janda & Kristoufek (2018).
All of their findings prove the relationship of the granger causality and the direction of effects of
the study.
Recommendations
The findings of this research study served as the reference of the researcher in formulating
recommendations.
1. The Department of Energy must lead the development strategies in the Philippines. It
must motivate the public and private sectors to come hand in hand in terms of arriving at
new research and development techniques in terms of its biofuel plan. Upon the

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realization of more effective production or management methods based on researches, the
ideas must be dispersed among businesses and fuel companies to improve the
productivity, increase the demand, and to ensure that supply of biodiesel can keep up
with the demand.
2. In cooperation with the Philippine Coconut Authority and Department of Agriculture,
they must pursue for better agricultural technology, better subsidies and policies for
coconut farmers, and ensure them with resilient climate change farming mechanisms. By
doing this, it would increase and encourage more farmers to work and produce crops for
alternative energy.
3. Invest in research and development of biofuels in order to diversify the range of products
that can be used for alternative energy. The government must invest and research on how
to move from the 1st generation biofuels to the 2nd generation biofuels in order to
maximize the effects and benefits of biodiesel and bioethanol.
Areas for Future Research
To further enhance the study, the following areas must be delved on:
1. Inclusion of more variables such as blend rates, oil supply, oil consumption and its
impact towards the dynamic trend of prices of oil.
2. How can the production of biodiesel and coconut increase in the Philippines?
3. What are the impacts of biofuel production to lives of farmers?
4. Utilization of a higher econometric analysis

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References
Housh, M., Cai, X., Ng, T., & Song, Y. (2014). Systems of Systems Model for Analysis of Biofeul
Development. American Society of Civil Engineers.
Stock, J. H., & Watson , M. W. (2001). Vector Autoregressions. 2-5.
Christiano, L. J. (2012). Christopher A. Sims and Vector Autoregressions. The Scandinavián:
Journal of Economics, 2-4.
Tripathy, J. P. (2013). Secondary Data Analysis: Ethical Issues and Challengeds. Iranian Journal
of Public Health, 1478.
Braun, J. (2007). Biofuels and the Poor: Finding the Win-Wins. Washington, DC: International
Food Policy Research Institute (IFPRI).
Braun, J., & Pachuari, R. (2008). The Promises and Challenges of Biofuels for the Poor in
Developing Countries. Sustainable Solutions For Ending Hunger and Poverty, 5, 8, 9, 13.
Pin Koh, L., & Ghazoul, J. (2008). Biofuels, biodiversity, and People: Understanding the
Conflicts and Finding Opportunities. Elesvier, 2453.
Gheewala, S. (2013). Biofuels: Economic, environmental and social benefits and costs for
developing countries in Asia. ResearchGate.
Yumkella, K., Banuri, T., Bryson, J., Coelho, S., Boer, Y., Figueres, J., & Helú, C. (2010, April).
Energy for a Sustainable Future. The Secretary-General's Advisory Group On Energy
And Climate Change (AGECC), 7-26.
Pinto, A., Guariero, L., Torres, E., & Andrade, J. (2005). Biodiesel: An Overview. J. Braz.
Chem. Soc., Vol. 16, 12-14.

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Imsirovic, A. (2014). Oil Markets in Transition and the Dubai Crude Oil Benchmark. Research
Gate, 2-6.
Norden, S., & Amano, R. (1998). ournal of International Money and Finance (Vols. vol. 17,
issue 2, 299-316). Bank of Canada.
Doornbosch, R., & Steenblik, R. (2007, September 11). Biofuels: Is The Cure Worse Than the
Disease? Round Table on Sustainble Development, 20.
Gheewala, S., Damen, B., & Shi, X. (2013, November). Biofuel: Economic, Environmental, and
Social Benefits and Costs for Developing Countries like Asia. Wiley interdisciplinary
reviews: Climate Change, 3-4, 7, 9.
Firoz, S. (2017, Nov 2). Advantages and Disadvantages of Biodiesel. International Research
Journal of Engineering and Technology, 04, 534.
Punongbayan, J. (2018, October 3). www.Rappler.com. Retrieved Feb 2019, from
www.Rappler.com: https://www.rappler.com/thought-leaders/213378-reasons-petroleum-
products-are-so-expensive-again
Sunshine, W. L. (2018, Nov 08). The Balance. Retrieved Feb 2019, from
https://www.thebalance.com/the-basics-of-crude-oil-classification-1182570
US Energy Information Administration. (2019, February 17). Independent Statistics and
Analysis. Retrieved from https://www.eia.gov/petroleum/gasdiesel/

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Appendix A. Unit Root ADF Test Results
Table 20. Unit Root ADF Test Results

1st Level 1st Difference
Variables T statistics p- values Remarks t statistics p- values Remarks
Biodiesel Test without 2.275 0.993 There is Unit -1.995 0.044 There is No
constant Root (non- Unit Root
stationary) (stationary)
Test with 1.154 0.997 There is Unit -4.511 0.001 There is No
Test with -1.187 0.893 There is Unit -5.239 0.001 There is No
constant and Root (non- Unit Root
trend stationary) (stationary)
Diesel Test without 0.096 0.705 There is Unit -5.296 0.000 There is No
Price constant Root (non- Unit Root
Farmgate Test without 1.360 0.957 There is Unit -5.917 0.000 There is No
Prices constant Root (non- Unit Root
GHG Test without 0.781 0.876 There is Unit -6.103 0.000 There is No
emission constant Root (non- Unit Root
Test with -0.845 0.790 There is Unit Root -6.360 0.000 There is No Unit
(non-stationary) Root (stationary)
constant
Diesel Test without 0.078 0.708 There is Unit -1.909 0.054 There is Unit
Blend constant Root (non- Root (non-
Rate stationary) stationary)
Test with -1.985 0.609 There is Unit -3.356 0.080 There is Unit
constant and Root (non- Root (non-
trend stationary) stationary)

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COLLEGE OF ARTS AND SCIENCES

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

A Vector Autoregression Approach on the Dynamic Relationship of the Trends of

An Undergraduate Thesis Presented to the

Evan Gaubert P. Paz

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

Figure 1. Hubbert's Peak Oil Curve 26

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

BBL Billion Barrels

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

of global copra prices are declining.

economic and environmental policy improvements.

larger rates are utilized.

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

results to an increase of prices in most products we use and have today.

global oil prices does affect Filipinos in two ways.

by ₱1.35 per liter and gasoline prices increased by ₱1 per liter.

on 2018 which amounted for an 1.6% increase.

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

there are more people on the road traveling.

gasoline. This practice is better, more environmentally friendly and sustainable.

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

Statement of the Problem

5.1. Foreign exchange

5.2. Dubai Crude oil price

6. How significant is the dynamic relationship among the trends of biodiesel

6.1. The impact of the lagged values in the selected variables

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

the consequences of their changes

6.3. Magnitude of the response of the selected indicators to shocks

7. What are the policy implications?

7.1. Economic policy implications

7.2. Environmental policy implications

Objectives of the Study

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

Significance of the Study

food security, diesel and farmgate prices.

continue to achieve the university’s mission and vision.

Scope and Limitations

limited to the aforementioned variables aside from its exogenous variables.

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

crude oil exported to Asia (Imsirovic, 2014).

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

medicines, chemicals, and plastics (Sunshine, 2018).

discrepancies in geography and production.

Through the widespread development of biofuels in various countries, the relationship of

with each other.

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

Studies about Forex

significant implications for the demand and supply of foreign exchange.

equilibrium (Norden & Amano, 1998).

allow for an appreciation of the Philippine currency.

should be taken into account, particularly over the short-run.

“THAT IN ALL THINGS, GOD MAY BE GLORIFIED!”

Studies about Biodiesel