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Comparison of fixed versus variable biofuels incentives

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  • Tyner, Wallace E.
  • Taheripour, Farzad
  • Perkis, David
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    Abstract

    We evaluated several variants of a variable biofuel subsidy and compared them with the fixed subsidy and Renewable Fuel Standard using two different modeling approaches. First we used a partial equilibrium model encompassing crude oil, gasoline, ethanol, corn, and ethanol by-products. Second, we used a stochastic simulation model of a prototypical ethanol plant. From the partial equilibrium analysis, it appears the variable subsidy provides a safety net for ethanol producers when oil prices are low; yet, it does not put undue pressure on corn prices when oil prices are high. At high oil prices, the level of ethanol production is driven by market forces. From the plant level stochastic analysis, essentially the same conclusions are reached. As with the fixed subsidy, the variable subsidy can increase the net present value (NPV) sufficiently to encourage investment, but with lower risk for the producer, lower probability of a loss from the investment, and often lower expected cost to government. Finally, in the US, the ethanol industry is up against a blending limit called the blend wall. If the blending wall remains in place and no way around it is found, it does not matter much what other policy options are used.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 38 (2010)
    Issue (Month): 10 (October)
    Pages: 5530-5540

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    Handle: RePEc:eee:enepol:v:38:y:2010:i:10:p:5530-5540

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    Web page: http://www.elsevier.com/locate/enpol

    Related research

    Keywords: Ethanol policy Biofuel incentives;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Taheripour, Farzad & Tyner, Wallace E., 2008. "Ethanol Policy Analysis - What Have We Learned So Far?," Choices, Agricultural and Applied Economics Association, vol. 23(3).
    2. Jonathan E. Hughes & Christopher R. Knittel & Daniel Sperling, 2006. "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand," NBER Working Papers 12530, National Bureau of Economic Research, Inc.
    3. Lihong Lu McPhail & Bruce A. Babcock, 2008. "Short-Run Price and Welfare Impacts of Federal Ethanol Policies," Center for Agricultural and Rural Development (CARD) Publications 08-wp468, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    4. Tyner, Wallace E. & Quear, Justin, 2006. "Comparison of a Fixed and Variable Corn Ethanol Subsidy," Choices, Agricultural and Applied Economics Association, vol. 21(3).
    5. Thaeripour, Farzad & Tyner, Wallace E., 2007. "Ethanol subsidies, Who gets the benefits?," Biofuels, Food and Feed Tradeoffs, Biofuels, Food and Feed Tradeoffs Conference, April 12-13, 2007, St, Louis, Missouri 48776, Farm Foundation.
    6. Tyner Wallace E., 2007. "Policy Alternatives for the Future Biofuels Industry," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 5(2), pages 1-13, December.
    7. Tyner Wallace & Taheripour Farzad, 2008. "Biofuels, Policy Options, and Their Implications: Analyses Using Partial and General Equilibrium Approaches," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 6(2), pages 1-19, December.
    8. Wallace E. Tyner & Farzad Taheripour, 2007. "Renewable Energy Policy Alternatives for the Future," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1303-1310.
    9. Tyner, Wallace E. & Taheripour, Farzad, 2008. "Policy analysis for integrated energy and agricultural markets in a partial equilibrium framework," Transition to a Bio Economy Conferences, Integration of Agricultural and Energy Systems Conference, February 12-13, 2008, Atlanta, Georgia 48712, Farm Foundation.
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    Cited by:
    1. Philip Abbott, 2013. "Biofuels, Binding Constraints and Agricultural Commodity Price Volatility," NBER Chapters, in: The Economics of Food Price Volatility National Bureau of Economic Research, Inc.
    2. Taheripour, Farzad & Tyner, Wallace E. & Fiegel, Julie, 2013. "Development of Corn Stover Biofuel: Impacts on Corn and Soybean Markets and Land Rotation," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 148851, Agricultural and Applied Economics Association.
    3. Condon, Nicole & Klemick, Heather & Wolverton, Ann, 2013. "Impacts of Ethanol Policy on Corn Prices: A Review and Meta-Analysis of Recent Evidence," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149940, Agricultural and Applied Economics Association.
    4. Philip Abbott, 2013. "Biofuels, Binding Constraints and Agricultural Commodity Price Volatility," NBER Working Papers 18873, National Bureau of Economic Research, Inc.

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