Does a renewable fuel standard for biofuels reduce climate costs?
AbstractRecent contributions have questioned whether biofuels policies actually lead to emissions reductions, and thus lower climate costs. In this paper we make two contributions to the literature. First, we study the market effects of a renewable fuel standard. Opposed to most previous studies we model the supply of fossil fuels taking into account that fossil fuels is a non-renewable resource. Second, we model emissions from land use change explicitly when we evaluate the climate effects of the renewable fuel standard. We find that extraction of fossil fuels most likely will decline initially as a consequence of the standard. Thus, if emissions from biofuels are sufficiently low, the standard will have beneficial climate effects. Furthermore, we find that the standard tends to reduce total fuel (i.e., oil plus biofuels) consumption initially. Hence, even if emissions from biofuels are substantial, climate costs may be reduced. Finally, if only a subset of countries introduce a renewable fuel standard, there will be carbon leakage to the rest of the world. However, climate costs may decline as global extraction of fossil fuels is postponed.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 720.
Date of creation: Dec 2012
Date of revision:
Biofuels; Non-renewable resources; Land-use changes; Climate costs;
Other versions of this item:
- Mads Greaker & Michael Hoel & Knut Einar Rosendahl, 2012. "Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs?," CESifo Working Paper Series 4030, CESifo Group Munich.
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
- NEP-AGR-2012-12-22 (Agricultural Economics)
- NEP-ALL-2012-12-22 (All new papers)
- NEP-ENE-2012-12-22 (Energy Economics)
- NEP-ENV-2012-12-22 (Environmental Economics)
- NEP-RES-2012-12-22 (Resource Economics)
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