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The Social Costs and Benefits of Biofuels: The Intersection of Environmental, Energy and Agricultural Policy

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  • Harry de Gorter
  • David R. Just

Abstract

The efficacy of alternative biofuel policies in achieving energy, environmental and agricultural policy goals is assessed using economic cost-benefit analysis. Government mandates are superior to consumption subsidies, especially with suboptimal fuel taxes and the higher costs involved with raising tax revenues. But subsidies with mandates cause adverse interaction effects; oil consumption is subsidized instead. This unique result also applies to renewable electricity that faces similar policy combinations. Ethanol policy can have a significant impact on corn prices; if not, inefficiency costs rise sharply. Ethanol policy can increase the inefficiency of farm subsidies and vice-versa. Policies that discriminate against trade, such as production subsidies and tariffs, can more than offset any benefits of a mandate. Sustainability standards are ineffective and illegal according to the WTO, and so should be re-designed. Copyright 2010, Oxford University Press.

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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal Applied Economic Perspectives and Policy.

Volume (Year): 32 (2010)
Issue (Month): 1 ()
Pages: 4-32

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Handle: RePEc:oup:apecpp:v:32:y:2010:i:1:p:4-32

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Cited by:
  1. Crago, Christine Lasco & Khanna, Madhu, 2014. "Carbon abatement in the fuel market with biofuels: Implications for second best policies," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 89-103.
  2. Rajagopal, Deepak & Zilberman, David, 2013. "On market-mediated emissions and regulations on life cycle emissions," Ecological Economics, Elsevier, vol. 90(C), pages 77-84.
  3. Bandyopadhyay, Subhayu & Bhaumik, Sumon & Wall, Howard, 2010. "Biofuel Subsidies and International Trade," MPRA Paper 30760, University Library of Munich, Germany.
  4. Hakan Eggert & Mads Greaker, 2014. "Promoting Second Generation Biofuels: Does the First Generation Pave the Road?," Energies, MDPI, Open Access Journal, vol. 7(7), pages 4430-4445, July.
  5. Ribeiro, Barbara Esteves, 2013. "Beyond commonplace biofuels: Social aspects of ethanol," Energy Policy, Elsevier, vol. 57(C), pages 355-362.
  6. Peri, Massimo & Baldi, Lucia, 2013. "The effect of biofuel policies on feedstock market: Empirical evidence for rapeseed oil prices in EU," Resource and Energy Economics, Elsevier, vol. 35(1), pages 18-37.
  7. Jaeger, William K. & Egelkraut, Thorsten M., 2011. "Biofuel economics in a setting of multiple objectives and unintended consequences," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4320-4333.
  8. Mindy L. Mallory & Dermot J. Hayes & Scott H. Irwin, 2010. "How Market Efficiency and the Theory of Storage Link Corn and Ethanol Markets," Midwest Agribusiness Trade Research and Information Center (MATRIC) Publications 10-wp517, Midwest Agribusiness Trade Research and Information Center (MATRIC) at Iowa State University.
  9. Gehlhar, Mark J. & Somwaru, Agapi & Somwaru, Agapi, 2010. "Effects of Increased Biofuels on the U.S. Economy in 2022," Economic Research Report 96758, United States Department of Agriculture, Economic Research Service.
  10. repec:pra:mprapa:41490 is not listed on IDEAS
  11. Maxwell, Christian & Davison, Matt, 2014. "Using real option analysis to quantify ethanol policy impact on the firm's entry into and optimal operation of corn ethanol facilities," Energy Economics, Elsevier, vol. 42(C), pages 140-151.
  12. Walls, W.D. & Rusco, Frank & Kendix, Michael, 2011. "Biofuels policy and the US market for motor fuels: Empirical analysis of ethanol splashing," Energy Policy, Elsevier, vol. 39(7), pages 3999-4006, July.

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