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

In: The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies

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

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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This chapter was published in:
  • Joshua S. Graff Zivin & Jeffrey M. Perloff, 2012. "The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies," NBER Books, National Bureau of Economic Research, Inc, number perl10-1, June.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12112.
    Handle: RePEc:nbr:nberch:12112
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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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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