Analyzing Trade Implications Of U.S. Biofuels Policies In A General Equilibrium Framework

As the biofuels are emerging as promising alternative transportation fuels across the world, they also offer huge potential for international trade in biofuels. A number of trade barriers such as import tariffs and domestic support have limited the scope for trade in biofuels. The purpose of this study is to analyze the implications of U.S. biofuel mandates, subsidies and import tariffs on global trade and welfare. We utilize the GTAP-BIO model, which was developed as a customized version of the Global Trade Analysis Project (GTAP) model capable of analyzing domestic and trade policy issues associated with biofuels (Birur, 2010). We supplement this model with updated and detailed sectoral level information on feedstock crops, different types of first and second generation biofuels and their byproducts. This highly refined data base facilitates the model for simulating changes in cropping patterns at individual crop level, land use changes, commodity prices, etc. We analyze the following policy scenarios in this study: (a) implementation of volume requirements consistent with the U.S RFS2 volumes for the year 2022 relative to a starting point of the base year 2004, (b) reduction in the ethanol specific import tariff from 54 ¢/gallon to 45 ¢/gallon, so that there will be “parity” between the U.S. and exporting country’s ethanol price, (c) Complete removal of the U.S. ethanol blenders’ credit and import tariff on ethanol, (d) combined implementation of (a) and (c) policy scenarios. This paper offers insights regarding the prospective policy options that can affect potential trade in biofuels amongst the major producing countries, such as the extent to which a removal of U.S. import tariff on ethanol affects pasture and forest land conversion in Brazil.