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Are there Carbon Savings from US Biofuel Policies? Accounting for Leakage in Land and Fuel Markets

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  • Bento, Antonio M.
  • Klotz, Richard
  • Landry, Joel R.

Abstract

This paper applies the insights of the carbon leakage literature to study the emissions consequences of biofuel policies. We develop a simple analytic framework to decompose the intended emissions impacts of biofuel policy from four sources of carbon leakage: domestic fuel markets, domestic land markets, world land markets and world crude oil markets. A numerical simulation model illustrates the magnitude of each source of leakage for combinations of two current US biofuel policies: the Volumetric Ethanol Excise Tax Credit (VEETC) and the Renewable Fuel Standard (RFS). In the presence of both land and fuel market leakage, current US biofuel policies are unlikely to reduce greenhouse gases. Four of the five policy scenarios we consider lead to increases in greenhouse gas emissions. That is, total leakage was greater than 100%. The single scenario that generates emissions savings, the removal of the VEETC in conjunction with a binding RFS, only does so because negative leakage in the domestic fuel market offset the remaining positive sources of leakage.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 104008.

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Date of creation: 2011
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Handle: RePEc:ags:aaea11:104008

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Keywords: Multi-market; carbon leakage; biofuels; greenhouse gases; Agricultural and Food Policy; Land Economics/Use; Resource /Energy Economics and Policy; Q42; Q54; Q58;

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  1. Brian C. Murray & Bruce A. McCarl & Heng-Chi Lee, 2004. "Estimating Leakage from Forest Carbon Sequestration Programs," UWO Department of Economics Working Papers 20043, University of Western Ontario, Department of Economics, revised Mar 2003.
  2. Antonio M. Bento & Lawrence H. Goulder & Mark R. Jacobsen & Roger H. von Haefen, 2009. "Distributional and Efficiency Impacts of Increased US Gasoline Taxes," American Economic Review, American Economic Association, vol. 99(3), pages 667-99, June.
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  4. Rajagopal, D. & Hochman, G. & Zilberman, D., 2011. "Indirect fuel use change (IFUC) and the lifecycle environmental impact of biofuel policies," Energy Policy, Elsevier, vol. 39(1), pages 228-233, January.
  5. Felder Stefan & Rutherford Thomas F., 1993. "Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Oil and Basic Materials," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 162-176, September.
  6. Carlos Arnade & David Kelch, 2007. "Estimation of Area Elasticities from a Standard Profit Function," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(3), pages 727-737.
  7. Torre Ugarte, Daniel de la & Sanford, Scott & Skinner, Robert A. & Westcott, Paul C. & Lin, William W., 2000. "Supply Response Under The 1996 Farm Act And Implications For The U.S. Field Crops Sector," Technical Bulletins 33568, United States Department of Agriculture, Economic Research Service.
  8. Searchinger, Timothy & Heimlich, Ralph & Houghton, R. A. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Tokgoz, Simla & Hayes, Dermot J. & Yu, Hun-Hsiang, 2008. "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change," Staff General Research Papers 12881, Iowa State University, Department of Economics.
  9. Drabik, Dusan & de Gorter, Harry & Just, David R., 2010. "The Implications of Alternative Biofuel Policies on Carbon Leakage," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 102689, Agricultural and Applied Economics Association.
  10. Harry de Gorter & David R. Just, 2008. "The Economics of a Blend Mandate for Biofuels," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 738-750.
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