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The Implications of Alternative Biofuel Policies on Carbon Leakage

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  • Drabik, Dusan
  • de Gorter, Harry
  • Just, David R.

Abstract

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.

Suggested Citation

  • Drabik, Dusan & de Gorter, Harry & Just, David R., 2011. "The Implications of Alternative Biofuel Policies on Carbon Leakage," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114432, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaae11:114432
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    References listed on IDEAS

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    1. Brian C. Murray & Bruce A. McCarl & Heng-Chi Lee, 2004. "Estimating Leakage from Forest Carbon Sequestration Programs," Land Economics, University of Wisconsin Press, vol. 80(1), pages 109-124.
    2. 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.
    3. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2009. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 106-146, February.
    4. Drabik, Dusan & de Gorter, Harry, 2010. "Biofuels And Leakages In The Fuel Market," Proceedings Issues, 2010: Climate Change in World Agriculture: Mitigation, Adaptation, Trade and Food Security, June 2010, Stuttgart- Hohenheim, Germany 91265, International Agricultural Trade Research Consortium.
    5. 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.
    6. 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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    Cited by:

    1. Abdul-Manan, Amir F.N., 2017. "Lifecycle GHG emissions of palm biodiesel: Unintended market effects negate direct benefits of the Malaysian Economic Transformation Plan (ETP)," Energy Policy, Elsevier, vol. 104(C), pages 56-65.
    2. Bilgili, Faik & Koçak, Emrah & Bulut, Ümit & Kuşkaya, Sevda, 2017. "Can biomass energy be an efficient policy tool for sustainable development?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 71(C), pages 830-845.
    3. de Gorter, Harry & Drabik, Dusan & Just, David R., 2011. "Modeling Carbon Leakages with Forestation Policies," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114450, European Association of Agricultural Economists.
    4. Janda, Karel & Kristoufek, Ladislav & Zilberman, David, 2011. "Biofuels: Review of Policies and Impacts," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5v1112qr, Department of Agricultural & Resource Economics, UC Berkeley.
    5. Ladislav Kristoufek & Karel Janda & David Zilberman, 2013. "Regime-dependent topological properties of biofuels networks," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 86(2), pages 1-12, February.
    6. Oladosu, Gbadebo, 2012. "Estimates of the global indirect energy-use emission impacts of USA biofuel policy," Applied Energy, Elsevier, pages 85-96.
    7. Drabik, Dusan & de Gorter, Harry & Timilsina, Govinda R., 2016. "Producing biodiesel from soybeans in Zambia: An economic analysis," Food Policy, Elsevier, vol. 59(C), pages 103-109.
    8. Drabik, Dusan, 2011. "The Theory of Biofuel Policy and Food Grain Prices," Working Papers 126615, Cornell University, Department of Applied Economics and Management.
    9. Bento, Antonio M. & Klotz, Richard & Landry, Joel R., 2011. "Are there Carbon Savings from US Biofuel Policies? Accounting for Leakage in Land and Fuel Markets," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 104008, Agricultural and Applied Economics Association.
    10. Karel Janda & Ladislav Kristoufek & David Zilberman, 2011. "Modeling the Environmental and Socio-Economic Impacts of Biofuels," Working Papers IES 2011/33, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2011.
    11. de Gorter, Harry & Drabik, Dusan & Timilsina, Govinda R., 2013. "Should Zambia produce biodiesel from soybeans ? some insights from an empirical analysis," Policy Research Working Paper Series 6498, The World Bank.

    More about this item

    Keywords

    biofuels; tax credit; mandate; market leakage; carbon leakage; emissions savings; domestic leakage; Resource /Energy Economics and Policy; Q27; Q41; Q42; Q54;

    JEL classification:

    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • 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 and their Management; Global Warming

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