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Meeting the Mandate for Biofuels: Implications for Land Use, Food and Fuel Prices

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  • Xiaoguang Chen
  • Haixiao Huang
  • Madhu Khanna
  • Hayri Önal

Abstract

Biofuel production is being promoted through various policies such as mandates and tax credits. This paper uses a dynamic, spatial, multi-market equilibrium model, Biofuel and Environmental Policy Analysis Model (BEPAM), to estimate the effects of these policies on cropland allocation, food and fuel prices, and the mix of biofuels from corn and cellulosic feedstocks over the 2007-2022 period. We find that the biofuel mandate will increase corn price by 24%, reduce the price of gasoline by 8% in 2022, and increase social welfare by $122 B (0.7%) relative to Business As Usual scenario. The provision of volumetric tax credits that accompany the mandate significantly changes the mix of biofuels produced in favor of cellulosic biofuels and reduces the share of corn ethanol in the cumulative volume of biofuels produced from 50% to 10%. The tax credits reduce the adverse impact of the mandate alone on crop prices and decrease the price of biofuels. However, they impose a welfare cost of $79 B compared to the mandate alone. These results are found to be sensitive to the rate of growth of crop productivity, the costs of production of bioenergy crops, and the availability of marginal land for producing bioenergy crops.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16697.

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Date of creation: Jan 2011
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Publication status: published as Meeting the Mandate for Biofuels: Implications for Land Use, Food, and Fuel Prices , Xiaoguang Chen, Haixiao Huang, Madhu Khanna, Hayri Önal. in The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies , Graff Zivin and Perloff. 2012
Handle: RePEc:nbr:nberwo:16697

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  1. Hayri Önal & Bruce A. McCarl, 1991. "Exact Aggregation in Mathematical Programming Sector Models," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 39(2), pages 319-334, 07.
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Cited by:
  1. Gal Hochman & Scott Kaplan & Deepak Rajagopal & David Zilberman, 2012. "Biofuel and Food-Commodity Prices," Agriculture, MDPI, Open Access Journal, vol. 2(3), pages 272-281, September.
  2. Ladislav Kristoufek & Karel Janda & David Zilberman, 2013. "Non-linear price transmission between biofuels, fuels and food commodities," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2013/16, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2013.
  3. Moschini, GianCarlo & Cui, Jingbo & Lapan, Harvey E., 0. "Economics of Biofuels: An Overview of Policies, Impacts and Prospects," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), Italian Association of Agricultural and Applied Economics (AIEAA), issue 3.
  4. Weiwei, Wang & Khanna, Madhu & Dwivedi, Puneet, 2013. "Optimal Mix of Feedstock for Biofuels: Implications for Land Use and GHG Emissions," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 150736, Agricultural and Applied Economics Association.
  5. Okwo, Adaora & Thomas, Valerie M., 2014. "Biomass feedstock contracts: Role of land quality and yield variability in near term feasibility," Energy Economics, Elsevier, Elsevier, vol. 42(C), pages 67-80.
  6. Chiripanhura, Blessing M. & Nino-Zarazua, Miguel, 2013. "The impacts of the food, fuel and financial crises on households in Nigeria: A retrospective approach for research enquiry," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  7. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel & Nathan C. Parker, 2013. "Unintended Consequences of Transportation Carbon Policies: Land-Use, Emissions, and Innovation," NBER Working Papers 19636, National Bureau of Economic Research, Inc.
  8. Ladislav Kristoufek & Karel Janda & David Zilberman, 2012. "Mutual Responsiveness of Biofuels, Fuels and Food Prices," CAMA Working Papers 2012-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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