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Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs?

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  • Mads Greaker

    (Statistics Norway)

  • Michael Hoel

    (University of Oslo)

  • Knut Einar Rosendahl

    (Statistics Norway)

Abstract

Recent literature on biofuels has questioned whether biofuels policies are likely to reduce the negative effects of climate change. In this paper we make two contributions to the literature. First, we study the market effects of a renewable fuel standard in a dynamic model taking into account that oil is a non-renewable resource. Second, we model emissions from land use change explicitly when we evaluate the climate effects of the renewable fuel standard. We find that global extraction of oil is postponed as a consequence of the renewable fuel standard. Thus, if emissions from biofuels are negligible, the standard will have beneficial climate effects. Furthermore, we find that the standard also tends to reduce total fuel (i.e., oil plus biofuels) consumption initially. Hence, even if emissions from biofuels are non-negligible, a renewable fuel standard may still reduce climate costs. In fact our simulations show that even for biofuels that are almost as emissions-intensive as oil, a renewable fuel standard has beneficial climate effects.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2014.32.

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Date of creation: Mar 2014
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Handle: RePEc:fem:femwpa:2014.32

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Keywords: Blending Mandate; Renewable Fuel Standard; Biofuels; Climate Costs;

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  1. Lapan, Harvey E. & Moschini, GianCarlo, 2012. "Second-Best Biofuel Policies and the Welfare Effects of Quantity Mandates and Subsidies," Staff General Research Papers 34891, Iowa State University, Department of Economics.
  2. Michael Hoel, 2011. "The Supply Side of CO2 with Country Heterogeneity," CESifo Working Paper Series 3393, CESifo Group Munich.
  3. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2006. "A Dynamic Model of Food and Clean Energy," IDEI Working Papers 403, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Hochman, Gal & Rajagopal, Deepak & Zilberman, David, 2010. "The effect of biofuel on the international oil market," CUDARE Working Paper Series 1099, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  5. 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.
  6. Kverndokk, Snorre & Einar Rosendahl, Knut, 2010. "The Effects of Transport Regulation on the Oil Market: Does Market Power Matter?," Discussion Papers dp-10-40, Resources For the Future.
  7. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
  8. Martin L. Weitzman, 2011. "Fat-Tailed Uncertainty in the Economics of Catastrophic Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(2), pages 275-292, Summer.
  9. Reyer Gerlagh, 2010. "Too Much Oil," Working Papers 2010.14, Fondazione Eni Enrico Mattei.
  10. Amundsen, Eirik S. & Mortensen, Jorgen Birk, 2001. "The Danish Green Certificate System: some simple analytical results," Energy Economics, Elsevier, vol. 23(5), pages 489-509, September.
  11. Eggert, Håkan & Greaker, Mads & Potter, Emily, 2011. "Policies for Second Generation Biofuels: Current status and future challenges," Working Papers in Economics 501, University of Gothenburg, Department of Economics.
  12. Hoel, Michael, 2011. "The supply side of CO2 with country heterogeneity," Memorandum 08/2011, Oslo University, Department of Economics.
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