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Second-best biofuel policies and the welfare effects of quantity mandates and subsidies

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  • Lapan, Harvey
  • Moschini, GianCarlo

Abstract

The quest for biorenewable energy sources is held to justify a number of government interventions, including support policies for biofuels such as those responsible for the recent rapid growth of US ethanol production. This article provides an analytical assessment of such policies. We construct a general equilibrium, open economy model that captures the rationale typically invoked to justify government intervention in this setting: to alleviate the environmental impact of energy consumption and to decrease US energy dependence on foreign sources. The model is used to study both the positive and normative implications of alternative policy instruments, including the subsidies and mandates specified by the 2007 Energy Independence and Security Act. From a positive perspective, we find that biofuels mandates are equivalent to a combination of fuel taxes and biofuels subsidies that are revenue neutral. From a welfare perspective, we show that biofuels mandates dominate biofuels subsidies, and that combining fuel taxes with mandates would be welfare enhancing.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 63 (2012)
Issue (Month): 2 ()
Pages: 224-241

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Handle: RePEc:eee:jeeman:v:63:y:2012:i:2:p:224-241

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Biofuel policies; Greenhouse gas emissions; Mandates; Second best; Subsidies; Welfare;

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Cited by:
  1. de Gorter, Harry & Drabik, Dusan & Timilsina, Govinda R., 2013. "The effect of biodiesel policies on world oilseed markets and developing countries," Policy Research Working Paper Series 6453, The World Bank.
  2. Wang, Xiaolei & Ouyang, Yanfeng & Yang, Hai & Bai, Yun, 2013. "Optimal biofuel supply chain design under consumption mandates with renewable identification numbers," Transportation Research Part B: Methodological, Elsevier, vol. 57(C), pages 158-171.
  3. Mads Greaker & Michael Hoel & Knut Einar Rosendahl, 2014. "Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs?," Working Papers 2014.32, Fondazione Eni Enrico Mattei.
  4. Amigues, Jean-Pierre & Chakravorty, Ujjayant & Lafforgue, Gilles & Moreaux, Michel, 2012. "Renewable Portfolio Standards and implicit tax-subsidy schemes: Structural differences induced by quantity and proportional mandates," LERNA Working Papers 12.02.359, LERNA, University of Toulouse.
  5. Kalkuhl, Matthias & Edenhofer, Ottmar & Lessmann, Kai, 2013. "Renewable energy subsidies: Second-best policy or fatal aberration for mitigation?," Resource and Energy Economics, Elsevier, vol. 35(3), pages 217-234.
  6. Mads Greaker & Michael Hoel & Knut Einar Rosendahl, 2012. "Does a renewable fuel standard for biofuels reduce climate costs?," Discussion Papers 720, Research Department of Statistics Norway.
  7. Julian M. Alston & Philip G. Pardey, 2014. "Agriculture in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 28(1), pages 121-46, Winter.
  8. Lemoine, Derek, 2013. "Escape from Third-Best: Rating Emissions for Intensity Standards," 2014 Allied Social Science Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA 161656, Agricultural and Applied Economics Association.
  9. Rajcaniova, Miroslava & Drabik, Dusan & Ciaian, Pavel, 2013. "How policies affect international biofuel price linkages," Energy Policy, Elsevier, vol. 59(C), pages 857-865.
  10. Vincent Martinet, 2012. "Effect of soil heterogeneity on the welfare economics of biofuel policies," Working Papers 2012/01, INRA, Economie Publique.
  11. Moschini, GianCarlo & Cui, Jingbo & Lapan, Harvey E., 0. "Economics of Biofuels: An Overview of Policies, Impacts and Prospects," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), issue 3.
  12. Rausser, Gordon C. & de Gorter, Harry, 2013. "US policy contributions to agricultural commodity price fluctuations, 2006.12," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  13. de Gorter, Harry & Drabik, Dusan & Kliauga, Erika M. & Timilsina, Govinda R., 2013. "An economic model of Brazil's ethanol-sugar markets and impacts of fuel policies," Policy Research Working Paper Series 6524, The World Bank.
  14. Chen, Xiaoguang & Huang, Haixiao & Khanna, Madhu & Önal, Hayri, 2014. "Alternative transportation fuel standards: Welfare effects and climate benefits," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 241-257.
  15. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel & Nathan C. Parker, 2013. "Unintended Consequences of Transportation Carbon Policies: Land-Use, Emissions, and Innovation," NBER Working Papers 19636, National Bureau of Economic Research, Inc.
  16. Klotz, Richard & Bento, Antonio M. & Landry, Joel R., 2013. "Economic Insights Required for Using Lifecycle Analysis for Policy Decisions," 2014 Allied Social Science Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA 161654, Agricultural and Applied Economics Association.
  17. Geir H. Bjertnæs, 2013. "Biofuel mandate versus favourable taxation of electric cars. The case of Norway," Discussion Papers 745, Research Department of Statistics Norway.
  18. Sánchez-Braza, Antonio & Pablo-Romero, María del P., 2014. "Evaluation of property tax bonus to promote solar thermal systems in Andalusia (Spain)," Energy Policy, Elsevier, vol. 67(C), pages 832-843.

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