Welfare Impacts of Alternative Biofuel and Energy Policies
AbstractWe employ an open economy general equilibrium model to investigate the effects of government energy policy, with an emphasis on corn-based ethanol, on the U.S. economy. The model specification incorporates world and domestic markets, assumes pollution costs from fuel consumption, and allows endogenous determination of equilibrium quantities and prices for oil, corn and ethanol. The model is calibrated to represent a recent benchmark data set for 2009 and is used to simulate the positive and normative effects of alternative policies. We find that a second best policy of a fuel tax and ethanol subsidy approximates fairly closely the welfare gains associated with the first-best policy of an optimal carbon tax and tariffs on traded goods. The largest economic gains to the U.S. economy from these energy policies arise from the impact of the policies on U.S. terms of trade, particularly in the oil market. We also find that, conditional on the current fuel tax, an optimal ethanol mandate is superior to an optimal ethanol subsidy. In the benchmark case, the optimal ethanol mandate is about 18 billion gallons.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 31618.
Date of creation: 08 Jun 2010
Date of revision:
Publication status: Published in American Journal of Agricultural Economics, October 2011, vol. 93 no. 5, pp. 1235-1256
Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
More information through EDIRC
Biofuel policies; carbon tax; ethanol subsidy; gasoline tax; Greenhouse gas emissions; Mandates; renewable fuel standard; Second best; welfare.;
Other versions of this item:
- Jingbo Cui & Harvey Lapan & GianCarlo Moschini & Joseph Cooper, 2011. "Welfare Impacts of Alternative Biofuel and Energy Policies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(5), pages 1235-1256.
- Cui, Jingbo & Lapan, Harvey E. & Moschini, GianCarlo & Cooper, Joseph C., 2010. "Welfare impacts of alternative biofuel and energy policies," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61138, Agricultural and Applied Economics Association.
- F1 - International Economics - - Trade
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
This paper has been announced in the following NEP Reports:
- NEP-AGR-2010-06-18 (Agricultural Economics)
- NEP-ALL-2010-06-18 (All new papers)
- NEP-CMP-2010-06-18 (Computational Economics)
- NEP-ENE-2010-06-18 (Energy Economics)
- NEP-ENV-2010-06-18 (Environmental Economics)
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