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Food for Fuel: The Effect of U.S. Energy Policy on Indian Poverty

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  • Chakravorty, Ujjayant

    ()
    (Tufts University)

  • Hubert, Marie-Helene

    ()
    (University of Rennes)

  • Ural Marchand, Beyza

    ()
    (University of Alberta, Department of Economics)

Abstract

Many countries have adopted energy policies that promote biofuels as a substitute for gasoline in transportation. For instance, 40% of U.S. grain is now used for energy and this share is expected to rise significantly under the current Renewable Fuels Mandate. This paper examines the distributional effects of the U.S. mandate on India. First, we use a model with endogenous land use to estimate the effect of biofuel policy on the world price of food commodities, in particular rice, wheat, sugar and meat and dairy, which provide almost 70% of Indian food calories. We obtain world price increases of the order of 10% for most of these commodities. Using Indian micro-level survey data for consumption and income, we carefully estimate the effect of these price increases on household welfare. We account for negative consumption impacts as well as the positive effects through wages and income. We consider both perfect and imperfect pass-through from world to domestic prices. We show that the net impact on welfare is negative as well as regressive, i.e., U.S. biofuels policy affects the poorest people the most. About 42 million new poor may be created in India alone. Under imperfect pass-through, this number declines to 16 million. The main implication is that U.S. energy policy that mandates the production of fuel from food may lead to a sharp increase in world poverty.

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Bibliographic Info

Paper provided by University of Alberta, Department of Economics in its series Working Papers with number 2012-17.

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Length: 46 pages
Date of creation: 01 Aug 2012
Date of revision:
Handle: RePEc:ris:albaec:2012_017

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Keywords: clean energy; food prices; household welfare; renewable fuel standards; poverty;

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References

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  1. Mundlak, Yair & Larson, Donald F, 1992. "On the Transmission of World Agricultural Prices," World Bank Economic Review, World Bank Group, World Bank Group, vol. 6(3), pages 399-422, September.
  2. Desai, Sonalde & Dubey, Amaresh & Joshi, Brij Lal & Sen, Mitali & Sharif, Abusaleh & Vanneman, Reeve, 2010. "Human Development in India: Challenges for a Society in Transition," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198065128, October.
  3. Xiaoguang Chen & Haixiao Huang & Madhu Khanna, 2012. "Land-Use And Greenhouse Gas Implications Of Biofuels: Role Of Technology And Policy," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 1250013-1-1.
  4. Chakravorty, Ujjayant & Hubert, Marie-Helene & Nostbakken, Linda, 2012. "The Long Run Impact of Biofuels on Food Prices," Working Papers 2012-11, University of Alberta, Department of Economics.
  5. Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
  6. Porto, Guido G., 2006. "Using survey data to assess the distributional effects of trade policy," Journal of International Economics, Elsevier, Elsevier, vol. 70(1), pages 140-160, September.
  7. Nicita, Alessandro, 2009. "The price effect of tariff liberalization: Measuring the impact on household welfare," Journal of Development Economics, Elsevier, Elsevier, vol. 89(1), pages 19-27, May.
  8. Gouel, Christophe & Hertel, Thomas, 2006. "Introducing Forest Access Cost Functions into a General Equilibrium Model," GTAP Research Memoranda, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University 2215, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  9. Ira N. Gang & Kunal Sen & Myeong-Su Yun, 2008. "Poverty In Rural India: Caste And Tribe," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 54(1), pages 50-70, 03.
  10. Ravindranath, N.H. & Sita Lakshmi, C. & Manuvie, Ritumbra & Balachandra, P., 2011. "Biofuel production and implications for land use, food production and environment in India," Energy Policy, Elsevier, Elsevier, vol. 39(10), pages 5737-5745, October.
  11. Deaton, Angus, 1989. "Rice Prices and Income Distribution in Thailand: A Non-parametric Analysis," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(395), pages 1-37, Supplemen.
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Cited by:
  1. Nicole Condon & Heather Klemick & Ann Wolverton, 2013. "Impacts of Ethanol Policy on Corn Prices: A Review and Meta-Analysis of Recent Evidence," NCEE Working Paper Series, National Center for Environmental Economics, U.S. Environmental Protection Agency 201305, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Oct 2013.

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