Path dependence: Biofuels policy under uncertainty about greenhouse gas emissions
AbstractWe study the effect of uncertainty about the greenhouse gas emissions arising from the production of biofuels on trade policy, in the presence of lobby groups and two policy instruments, trade policy and biofuels mandates. We show that in the presence of biofuels mandates it would be optimal from a societal point of view to lower the trade tariff on biofuels when the emissions from their production are shown to be ‘high’ as compared to when they are believed to be ‘low’. If the government is susceptible to lobbying, the tariff may be raised instead. We further show that at subsequent time periods, the biofuels sector’s marginal lobbying effort will not fall compared to previous periods, and that consequently, its political contribution also does not fall. Finally we show how policy may be path dependent, i.e., that earlier tariff rates in part determine future tariff rates if the government is susceptible to lobbying and given that the domestic price of biofuels does not fall. The model can, e.g., shed light on why the EU does not lower the tariffs on Brazilian ethanol in the face of new information.
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Bibliographic InfoPaper provided by CTS - Centre for Transport Studies Stockholm (KTH and VTI) in its series Working papers in Transport Economics with number 2011:1.
Length: 26 pages
Date of creation: 16 Nov 2011
Date of revision:
Contact details of provider:
Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Web page: http://www.cts.kth.se/
Path dependence; trade policy; biofuels mandate; political economics;
Find related papers by JEL classification:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- F18 - International Economics - - Trade - - - Trade and Environment
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-21 (All new papers)
- NEP-ENE-2011-11-21 (Energy Economics)
- NEP-ENV-2011-11-21 (Environmental Economics)
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