Explorations in Biofuels Economics, Policy, and History: Introduction to the Special Issue

Biofuels are prominent in current discussion both as a solution to problems and as a creator of problems. They have promise as a substitute for fossil fuels, particularly for petroleum as the raw material for transportation fuel. But biofuels also have pitfalls, especially when produced at a scale sufficient to replace a significant proportion of the world's use of petroleum. The articles in this special issue analyze key aspects of both the promise and pitfalls of biofuels. They address issues in the technology of producing raw materials for biofuels and converting these raw materials into fuel, resource constraints facing expansion of biofuel production, and the demand for fuels. Particular attention is paid to the relationship between expanded biofuel production and the cost of food. The economics of biofuels is inherently linked to policy issues as well as market analysis because biofuels in every country have received subsidies from governments. Consequently several articles address the welfare economics of governmental efforts to promote biofuels, with a focus on U.S. ethanol subsidies. These subsidies generate net social losses (deadweight costs) on a global scale, although not necessarily from the U.S. national viewpoint. Governmental promotion of biofuels can be justified on the grounds of externalities created by the use of fossil fuels, most notably in recent debates on global warming caused by the release of sequestered carbon in the form of carbon dioxide. This justification is weakened and perhaps even nullified by externalities in the production and use of biofuels. The articles in this issue consider a range of topics concerning these matters, and the welfare losses caused by biofuel subsidies absent net environmental gains from biofuels.