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 Swedish National Road & Transport Research Institute (VTI) in its series Working Papers with number 2011:1.
Length: 26 pages
Date of creation: 12 Jan 2011
Date of revision:
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Postal: VTI, Transport Economics, P.O. Box 6056, SE-171 06 Solna, Sweden
Phone: +46-13-20 40 00
Fax: +46-13-14 14 36
Web page: http://www.vti.se/tek
More information through EDIRC
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-2011-01-23 (All new papers)
- NEP-ENE-2011-01-23 (Energy Economics)
- NEP-ENV-2011-01-23 (Environmental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Le Breton, Michel & Salanie, Francois, 2003. "Lobbying under political uncertainty," Journal of Public Economics, Elsevier, vol. 87(12), pages 2589-2610, December.
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