Advanced Search
MyIDEAS: Login to save this article or follow this journal

Substitution between biofuels and fossil fuels: Is there a green paradox?

Contents:

Author Info

  • Quentin Grafton, R.
  • Kompas, Tom
  • Van Long, Ngo

Abstract

We show that (i) subsidies for renewable energy policies with the intention of encouraging substitution away from fossil fuels may accentuate climate change damages by hastening fossil fuel extraction, and that (ii) the opposite result holds under some specified conditions. We focus on the case of subsidies for renewable resources produced under increasing marginal costs, and assume that both the renewable resources and the fossil fuels are currently in use. Such subsidies have a direct effect and an indirect effect working in opposite directions. The direct effect is the reduction in demand for fossil fuels at any given price. The indirect effect is the reduction in the current equilibrium price for fossil fuels, which tends to increase the amount of fossil fuels demanded. Whether the sum of the two effects will actually result in an earlier or later date of exhaustion of the stock of fossil fuels depends on the curvature of the demand curve for energy and of the supply curve for the renewable substitute.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0095069612000733
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

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

Volume (Year): 64 (2012)
Issue (Month): 3 ()
Pages: 328-341

as in new window
Handle: RePEc:eee:jeeman:v:64:y:2012:i:3:p:328-341

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Biofuels subsidies; The Green Paradox; Climate change;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Eric Bahel & Walid Marrouch & Gerard Gaudet, 2010. "The Economics of Oil, Biofuel and Food Commodities," Working Papers, Virginia Polytechnic Institute and State University, Department of Economics e07-26, Virginia Polytechnic Institute and State University, Department of Economics.
  2. Long, Ngo Van & Sinn, Hans-Werner, 1985. "Surprise Price Shifts, Tax Changes and the Supply Behaviour of Resource Extracting Firms," Australian Economic Papers, Wiley Blackwell, Wiley Blackwell, vol. 24(45), pages 278-89, December.
  3. Frederick van der Ploeg & Cees Withagen, 2010. "Is there really a Green Paradox?," Tinbergen Institute Discussion Papers, Tinbergen Institute 10-020/3, Tinbergen Institute, revised 27 Aug 2012.
  4. Berg, Elin & Kverndokk, Snorre & Rosendahl, Knut Einar, 2002. "Oil Exploration under Climate Treaties," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 44(3), pages 493-516, November.
  5. Chakravorty, Ujjayant & Hubert, Marie-Helene & Moreaux, Michel & Nostbakken, Linda, 2011. "Will Biofuel Mandates Raise Food Prices?," Working Papers, University of Alberta, Department of Economics 2011-1, University of Alberta, Department of Economics, revised 01 May 2011.
  6. Groth, Christian & Schou, Poul, 2007. "Growth and non-renewable resources: The different roles of capital and resource taxes," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 53(1), pages 80-98, January.
  7. Jon Strand, 2007. "Technology Treaties and Fossil-Fuels Extraction," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 129-142.
  8. Hans-Werner Sinn, 2007. "Public Policies against Global Warming," NBER Working Papers 13454, National Bureau of Economic Research, Inc.
  9. Thomas Eichner & Rüdiger Pethig, 2011. "Carbon Leakage, The Green Paradox, And Perfect Future Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 767-805, 08.
  10. Lapan, Harvey E. & Moschini, GianCarlo, 2009. "Biofuels Policies and Welfare: Is the Stick of Mandates Better Than the Carrot of Subsidies?," Staff General Research Papers, Iowa State University, Department of Economics 13076, Iowa State University, Department of Economics.
  11. Corrado Di Maria & Sjak Smulders & Edwin van der Werf, 2008. "Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions," Working Papers, Fondazione Eni Enrico Mattei 2008.92, Fondazione Eni Enrico Mattei.
  12. Copeland, Brian R. & Taylor, M. Scott, 2005. "Free trade and global warming: a trade theory view of the Kyoto protocol," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 49(2), pages 205-234, March.
  13. Hoel, Michael & Kverndokk, Snorre, 1996. "Depletion of fossil fuels and the impacts of global warming," Resource and Energy Economics, Elsevier, Elsevier, vol. 18(2), pages 115-136, June.
  14. Hoel, Michael, 1978. "Resource extraction, substitute production, and monopoly," Journal of Economic Theory, Elsevier, Elsevier, vol. 19(1), pages 28-37, October.
  15. Farzin, Y H, 1992. "The Time Path of Scarcity Rent in the Theory of Exhaustible Resources," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 102(413), pages 813-30, July.
  16. Sinn, Hans-Werner, 2012. "The Green Paradox: A Supply-Side Approach to Global Warming," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262016680, December.
  17. Subhayu Bandyopadhyay & Sumon Bhaumik & Howard J. Wall, 2009. "Biofuel subsidies: an open-economy analysis," Working Papers, Federal Reserve Bank of St. Louis 2009-053, Federal Reserve Bank of St. Louis.
  18. Olli Tahvonen, 1997. "Fossil Fuels, Stock Externalities, and Backstop Technology," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 30(4), pages 855-74, November.
  19. Hoel Michael, 1994. "Efficient Climate Policy in the Presence of Free Riders," Journal of Environmental Economics and Management, Elsevier, Elsevier, vol. 27(3), pages 259-274, November.
  20. Ujjayant Chakravorty & Marie-H�l�ne Hubert & Linda N�stbakken, 2009. "Fuel Versus Food," Annual Review of Resource Economics, Annual Reviews, Annual Reviews, vol. 1(1), pages 645-663, 09.
  21. Ulph, Alistair & Ulph, David, 1994. "The Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, Oxford University Press, vol. 46(0), pages 857-68, Supplemen.
  22. Rubio, Santiago J. & Escriche, Luisa, 2001. "Strategic pigouvian taxation, stock externalities and polluting non-renewable resources," Journal of Public Economics, Elsevier, Elsevier, vol. 79(2), pages 297-313, February.
  23. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
  24. Jota Ishikawa & Kazuharu Kiyono, 2006. "Greenhouse-Gas Emission Controls In An Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 431-450, 05.
  25. Hoel, Michael, 1983. "Monopoly resource extractions under the presence of predetermined substitute production," Journal of Economic Theory, Elsevier, Elsevier, vol. 30(1), pages 201-212, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:64:y:2012:i:3:p:328-341. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.