The Relative Impacts of U.S. Bio-Fuel Policies on Fuel-Energy Markets: A Comparative Static Analysis
AbstractRapidly declining gasoline prices from their record high during the summer of 2008, while ethanol prices remained relatively high, made it difficult for many bio-fuel policy modelers to fully explain the impacts of U.S. bio-fuel policies on fuel prices. Using profit-maximization models for blenders, refiners, and distillers, we conduct a comparative static analysis to measure the relative magnitudes of the impacts of tax credits and blending mandates on fuel-energy market equilibrium prices. Our results indicate that first, the prices of all fuels including conventional gasoline, ethanol, and blended gasoline decline as the biofuel tax credit increases, but they increase as the rate of the blending mandate increases. Second, the shadow value of a blending mandate represents the marginal rate of substitution between the marginal price change associated with a blending mandate and the marginal price change associated with a bio-fuel tax credit. Therefore, bio-fuel policies can affect the prices of all fuels including conventional gasoline, ethanol, and blended gasoline. Finally, ethanol imports are affected by domestic blenderâ€™s market-power effects, more than by the import duty imposed to offset the tax credit associated with the use of imported ethanol in the blending process.
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Bibliographic InfoArticle provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.
Volume (Year): 42 (2010)
Issue (Month): 01 (February)
bio-fuel tax credits; blended gasoline; blenderâ€™s market power; mandated blending; tariff; Agribusiness; Marketing; Political Economy; Resource /Energy Economics and Policy; Q11; Q21; Q42; Q48;
Find related papers by JEL classification:
- Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
- Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
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- Zhang, Zibin & Qiu, Cheng & Wetzstein, Michael, 2010. "Blend-wall economics: Relaxing US ethanol regulations can lead to increased use of fossil fuels," Energy Policy, Elsevier, vol. 38(7), pages 3426-3430, July.
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