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The economics of trade, biofuel, and the environment

  • Hochman, Gal

    ()

    (University of California, Berkeley. Dept of agricultural and resource economics)

  • Sexton, Steven E.

    ()

    (University of California, Berkeley. Dept of agricultural and resource economics)

  • Zilberman, David D.

    ()

    (University of California, Berkeley. Dept of agricultural and resource economics)

The introduction of renewable biofuels was associated with global food crisis and unintended environmental consequences. This paper incorporates energy environment and agricultural sector to the classic Hecksher-Ohlin model to address these issues. A household production function model was introduced to model consumer energy choices and concern about externalities related to climate change and open space. The conceptual model links energy and food markets and derives guidelines for the development of climate change and land-use policies. The results suggest that globalization and capital flows increase demand for energy, leading to decline in food production, increase in food prices, and loss of environmental land. Globally optimal outcomes may require introducing an emission tax and a land-use tax. The introduction of these policies may undermine the factor price equalization theorem. Policies that allow enhancing either agriculture productivity (e.g., agriculture biotechnology) or biofuel productivity (e.g., second-generation biofuels), are shown to lessen the resource constraint associated with the cost of introducing renewable energy.

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Paper provided by University of California at Berkeley, Department of Agricultural and Resource Economics and Policy in its series CUDARE Working Paper Series with number 1100.

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Length: 29 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:are:cudare:1100
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