IDEAS home Printed from https://ideas.repec.org/p/ekd/004912/5417.html
   My bibliography  Save this paper

Biofuels, tax policies and oil price: insights from a dynamic CGE model

Author

Listed:
  • Virginie Doumax
  • Jean-Marc Philip
  • Cristina Sarasa

Abstract

The 2009 Directive on Renewable Energies (called RED) has set up ambitious targets concerning biofuels consumption in the European Union. This paper addresses this issue in the case of France, focusing on alternative tax policies designed to stimulate biofuels consumption. Our main objective is to determine under what circumstances tax policies could help the French government to achieve the 2020 biofuels consumption mandate. A common response is to increase taxes on fossil fuels in order to enhance the price competitiveness of their renewable substitutes on the fuel market. However, recent studies (Timilsina et al., 2011a; Barker et al., 2008; Weber et al., 2005) have shown that the way the government uses the tax revenue is a key determinant. Indeed, recycling the tax revenue to households through a lump-sum rebate is not an efficient strategy since the impact on biofuels consumption is limited, even with higher tax rates. Hovewer, when the tax revenue is used to finance a biofuel subsidy, the market penetration of biofuels increases significantly. On the other hand, some studies underline the role of oil prices in the expansion of biofuels worldwide. Timilsina et al. (2011b) show that if oil prices rise 150% from their 2009 levels by 2020, the resulting penetration of biofuels would be 9%. But they don’t take into account the context of rising oil prices into a tax policy analysis. With these questions in mind, we propose to go further and to combine both features, tax policies and rising oil prices, into a same model. The aim is to determine the minimal level of additional taxes on fossil fuels needed to achieve the 2020 biofuels target when oil prices increase. On the other hand, we take into account the budgetary constraints of the government by eliminating the differential tax rate between fossil fuels and renewable fuels. To do it, we increase the level of the excise-tax on biofuels by 35% in order to observe if the 2020 biofuels target could be also reached under this assumption. For this purpose, we develop a multi-sector, recursive dynamic computable general equilibrium (CGE) model calibrated on 2009 French data. Standard CGE models take into account the various inter-linkages between economic sectors and are particularly useful for the evaluation of tax policies. Our first scenario consists in designing different tax schemes on fossil fuels. We compare the level of additional taxes required to reach the 2020 consumption target when the tax rate increases progressively and when the rise is less graduated. Then, in a second scenario, we wonder which would be the level of taxes on fossil fuels to reach the 2020 consumption target when the excise-tax rate on biofuels is increased. In a third scenario, we combine the precedent simulation with an exogenous increase of oil prices with the assumption that future evolution of oil prices will follow the trend observed on the past period. This paper also investigates the economy-wide effects of these alternative scenarios, notably on the agricultural sector. Indeed, the impacts of a larger expansion of biofuels may increase the agricultural outputs, while an exogenous increase of oil prices may lead to an output drop. Finally, we introduce explicitly biofuels by-products in the analysis, notably oilseed meals, in order to check if their presence reduces the price impacts of the biofuel production. Indeed, recent studies (for e.g. Taheripour et al., 2010) have shown that the presence of by-products could mitigate the price impacts of biofuel production. Results of scenarios 1 and 2 suggest that the target could be achieved with acceptable levels of taxation. Nevertheless, scenario 2 implies higher tax rates on fossil fuels and larger but limited welfare losses. The needed level of additional taxes is lower when it is analyzed in a context of rising oil prices, as it was expected. Besides, we find that the development of biofuel consumption only partially offsets the depressive effect of oil prices on the agricultural output. The introduction in the model of biofuels by-prducts reveals smaller changes in agricultural prices, particularly in the livestock sector, confirming that models that omit by-products may overstate the economic impacts of biofuels mandates.

Suggested Citation

  • Virginie Doumax & Jean-Marc Philip & Cristina Sarasa, 2013. "Biofuels, tax policies and oil price: insights from a dynamic CGE model," EcoMod2013 5417, EcoMod.
  • Handle: RePEc:ekd:004912:5417
    as

    Download full text from publisher

    File URL: http://ecomod.net/system/files/Doumax%20et%20al..pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
    2. Schneider, Uwe A. & McCarl, Bruce A., 2005. "Implications of a Carbon-Based Energy Tax for U.S. Agriculture," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 34(2), pages 1-15, October.
    3. Martin Banse & Hans van Meijl & Andrzej Tabeau & Geert Woltjer, 2008. "Will EU biofuel policies affect global agricultural markets?," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 35(2), pages 117-141, June.
    4. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, vol. 95(4), pages 1276-1289, September.
    5. Birur, Dileep & Hertel, Thomas & Tyner, Wally, 2008. "Impact of Biofuel Production on World Agricultural Markets: A Computable General Equilibrium Analysis," GTAP Working Papers 2413, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    6. Searchinger, Timothy & Heimlich, Ralph & Houghton, R. A. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Tokgoz, Simla & Hayes, Dermot J. & Yu, Hun-Hsiang, 2008. "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change," Staff General Research Papers Archive 12881, Iowa State University, Department of Economics.
    7. Timilsina, Govinda R. & Csordás, Stefan & Mevel, Simon, 2011. "When does a carbon tax on fossil fuels stimulate biofuels?," Ecological Economics, Elsevier, vol. 70(12), pages 2400-2415.
    8. Simon Mevel & Ashish Shrestha & Govinda Timilsina, 2011. "Oil price, biofuels and food supply," Post-Print hal-01884880, HAL.
    9. Burniaux, Jean-Marc & Truong Truong, 2002. "GTAP-E: An Energy-Environmental Version of the GTAP Model," GTAP Technical Papers 923, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    10. Burniaux, Jean-March & Truong, Truong P., 2002. "Gtap-E: An Energy-Environmental Version Of The Gtap Model," Technical Papers 28705, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. Mark W. Rosegrant & Tingju Zhu & Siwa Msangi & Timothy Sulser, 2008. "Global Scenarios for Biofuels: Impacts and Implications ," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(3), pages 495-505.
    12. Timilsina, Govinda R. & Mevel, Simon & Shrestha, Ashish, 2011. "Oil price, biofuels and food supply," Energy Policy, Elsevier, vol. 39(12), pages 8098-8105.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Doumax, Virginie & Philip, Jean-Marc & Sarasa, Cristina, 2014. "Biofuels, tax policies and oil prices in France: Insights from a dynamic CGE model," Energy Policy, Elsevier, vol. 66(C), pages 603-614.
    2. Doumax-Tagliavini, Virginie & Sarasa, Cristina, 2018. "Looking towards policies supporting biofuels and technological change: Evidence from France," Renewable and Sustainable Energy Reviews, Elsevier, vol. 94(C), pages 430-439.
    3. María Blanco & Marcel Adenäuer & Shailesh Shrestha & Arno Becker, 2012. "Methodology to assess EU Biofuel Policies: The CAPRI Approach," JRC Working Papers JRC80037, Joint Research Centre (Seville site).
    4. Virginie Doumax-Tagliavini & Cristina Sarasa, University of Zaragoza, 2014. "Biofuels, technological change and uncertainty: Evidence from France," EcoMod2014 6941, EcoMod.
    5. Huang, Jikun & Yang, Jun & Msangi, Siwa & Rozelle, Scott & Weersink, Alfons, 2012. "Biofuels and the poor: Global impact pathways of biofuels on agricultural markets," Food Policy, Elsevier, vol. 37(4), pages 439-451.
    6. Ujjayant Chakravorty & Marie-Hélène Hubert & Linda Nøstbakken, 2009. "Fuel Versus Food," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 645-663, September.
      • Ujjayant Chakravorty & Marie-Hélène Hubert & Linda Nøstbakken, 2009. "Fuel Versus Food," Post-Print halshs-01117673, HAL.
      • Chakravorty, Ujjayant & Hubert, Marie-Helene & Nostbakken, Linda, 2009. "Fuel versus Food," Working Papers 2009-20, University of Alberta, Department of Economics.
    7. Huang, Jikun & Yang, Jun & Msangi, Siwa & Rozelle, Scott & Weersink, Alfons, 2012. "Global biofuel production and poverty in China," Applied Energy, Elsevier, vol. 98(C), pages 246-255.
    8. Ren, Xiaolin & Fullerton, Don & Braden, John B., 2011. "Optimal taxation of externalities interacting through markets: A theoretical general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 33(3), pages 496-514, September.
    9. Hertel, Thomas W. & Tyner, Wallace E. & Birur, Dileep K., 2008. "Biofuels for all? Understanding the Global Impacts of Multinational Mandates," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6526, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Timilsina, Govinda R. & Csordás, Stefan & Mevel, Simon, 2011. "When does a carbon tax on fossil fuels stimulate biofuels?," Ecological Economics, Elsevier, vol. 70(12), pages 2400-2415.
    11. Carmen Aina & Lorenzo Cappellari & Marco Francesconi, 2010. "Student Performance may not Improve when Universities are Choosier," CESifo Working Paper Series 3264, CESifo.
    12. Panichelli, Luis & Gnansounou, Edgard, 2015. "Impact of agricultural-based biofuel production on greenhouse gas emissions from land-use change: Key modelling choices," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 344-360.
    13. Grainger, Corbett & Schreiber, Andrew & Zhang, Fan, 2019. "Distributional impacts of energy-heat cross-subsidization," Energy Policy, Elsevier, vol. 125(C), pages 65-81.
    14. Kamel Louhichi & Hugo Valin, 2012. "Impact of EU biofuel policies on the French arable sector: A micro-level analysis using global market and farm-based supply models," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 93(3), pages 233-272.
    15. Dumortier, Jerome & Elobeid, Amani, 2021. "Effects of a carbon tax in the United States on agricultural markets and carbon emissions from land-use change," Land Use Policy, Elsevier, vol. 103(C).
    16. Beckman, Jayson & Hertel, Thomas & Tyner, Wallace, 2011. "Validating energy-oriented CGE models," Energy Economics, Elsevier, vol. 33(5), pages 799-806, September.
    17. George Philippidis & Robert M’barek & Emanuele Ferrari, 2016. "Drivers of the European Bioeconomy in Transition (BioEconomy2030): an exploratory, model-based assessment," JRC Working Papers JRC98160, Joint Research Centre (Seville site).
    18. M'Barek, Robert & Philippidis, George & Suta, Cornelia & Vinyes, Cristina & Caivano, Arnaldo & Ferrari, Emanuele & Ronzon, Tevecia & Sanjuan Lopez, Ana & Santini, Fabien, 2014. "Observing and analysing the Bioeconomy in the EU – Adapting data and tools to new questions and challenges," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 3(1), pages 1-9, April.
    19. Rasetti, Michele & Ferreira, Joaquim B.S., Filho & Finco, Adele & Pena-Levano, Luis M. & Zhao, Xin & Opgrand, Jeffrey, 2015. "Economic and Environmental Effects of the European Biofuel Policy," 2015 Conference, August 9-14, 2015, Milan, Italy 212489, International Association of Agricultural Economists.
    20. Jun Yang & Huanguang Qiu & Jikun Huang & Scott Rozelle, 2008. "Fighting global food price rises in the developing world: the response of China and its effect on domestic and world markets," Agricultural Economics, International Association of Agricultural Economists, vol. 39(s1), pages 453-464, November.

    More about this item

    Keywords

    The model concerns the French national economy.; Energy and environmental policy; Agricultural issues;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ekd:004912:5417. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/ecomoea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Theresa Leary (email available below). General contact details of provider: https://edirc.repec.org/data/ecomoea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.