The Implications of Alternative Biofuel Policies on Carbon Leakage
We show carbon leakage depends on the type of biofuel policy (tax credit versus mandate), the domestic and foreign gasoline supply and fuel demand elasticities, and on consumption and production shares of world oil markets for the country introducing the biofuel policy. The components of carbon leakage – market leakage and emissions savings – are counteracting: carbon leakage increases with market leakage but decreases with emissions savings. We also distinguish domestic and international leakage where the latter is always positive, but domestic leakage can be negative with a mandate. The IPCC definition of leakage omits domestic leakage, resulting in biased estimates. Leakage with a tax credit always exceeds that of a mandate, while the combination of a mandate and tax credit generates lower leakage than a tax credit alone. In general, a gallon of ethanol (energy equivalent) is found to replace 35 percent of a gallon of gasoline – not 100 percent as assumed by life-cycle accounting. This means ethanol emits 13 percent more carbon than a gallon of gasoline if indirect land use change (iLUC) is not included in the estimated emissions savings effect and 43 percent more when iLUC is included.
|Date of creation:||2011|
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- Holland, Stephen P. & Knittel, Christopher R & Hughes, Jonathan E., 2008.
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UWO Department of Economics Working Papers
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- Harry de Gorter & David R. Just, 2007. "The Welfare Economics of a Biofuel Tax Credit and the Interaction Effects with Price Contingent Farm Subsidies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(2), pages 477-488.
- Harry de Gorter & David R. Just, 2008. "The Economics of a Blend Mandate for Biofuels," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 738-750.
- R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
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