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Biofuels production versus forestry in the presence of lobbies and technological change

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Author Info
Hammes, Johanna Jussila () (VTI)
Abstract

We study the political determination of a hypothetical land tax, which internalises a negative environmental externality from biofuels. The tax allocates land from biofuels towards forestry. Lobbying affects the tax rate, so that the sector with the lower elasticity of land demand determines the direction in which the tax deviaties from the social optimum. Lobbying by the sector with higher elasticity of land demand cancels partly out the other sector's lobbying. The politically optimal tax rate is "self-enhancing" in that the tax lowers the elasticity of land demand in the sector which initially had a lower elasticity, and raises it in the other sector. This can dwarf the government's other attempts to support the production of biofuels. Finally, technological progress in biofuels serves to strengthen that sector by lowering its elasticity of land demand, and weakens the forestry sector by raising its elasticity of land demand. Depending on the initial tax rate, this can be welfare enhancing or lowering. Furthermore, it can lead to excessive deforestation.

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Publisher Info
Paper provided by Swedish National Road & Transport Research Institute (VTI) in its series Working Papers with number 2009:7.

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Length: 46 pages
Date of creation: 08 Jul 2009
Date of revision:
Handle: RePEc:hhs:vtiwps:2009_007

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Related research
Keywords: Biofuels; forestry; land use; political economy; technological change;

Find related papers by JEL classification:
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation
Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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