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Meeting the Mandate for Biofuels: Implications for Land Use, Food and Fuel Prices

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Listed:
  • Xiaoguang Chen
  • Haixiao Huang
  • Madhu Khanna
  • Hayri Önal

Abstract

Biofuel production is being promoted through various policies such as mandates and tax credits. This paper uses a dynamic, spatial, multi-market equilibrium model, Biofuel and Environmental Policy Analysis Model (BEPAM), to estimate the effects of these policies on cropland allocation, food and fuel prices, and the mix of biofuels from corn and cellulosic feedstocks over the 2007-2022 period. We find that the biofuel mandate will increase corn price by 24%, reduce the price of gasoline by 8% in 2022, and increase social welfare by $122 B (0.7%) relative to Business As Usual scenario. The provision of volumetric tax credits that accompany the mandate significantly changes the mix of biofuels produced in favor of cellulosic biofuels and reduces the share of corn ethanol in the cumulative volume of biofuels produced from 50% to 10%. The tax credits reduce the adverse impact of the mandate alone on crop prices and decrease the price of biofuels. However, they impose a welfare cost of $79 B compared to the mandate alone. These results are found to be sensitive to the rate of growth of crop productivity, the costs of production of bioenergy crops, and the availability of marginal land for producing bioenergy crops.

Suggested Citation

  • Xiaoguang Chen & Haixiao Huang & Madhu Khanna & Hayri Önal, 2011. "Meeting the Mandate for Biofuels: Implications for Land Use, Food and Fuel Prices," NBER Working Papers 16697, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16697
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    References listed on IDEAS

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    1. Hayri Önal & Bruce A. McCarl, 1991. "Exact Aggregation in Mathematical Programming Sector Models," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 39(2), pages 319-334, July.
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    Cited by:

    1. Chen, Xiaoguang & Khanna, Madhu, 2014. "Indirect Land Use Effects of Corn Ethanol in the U.S: Implications for the Conservation Reserve Program," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170284, Agricultural and Applied Economics Association.
    2. Huang, Haixiao & Khanna, Madhu & Önal, Hayri & Chen, Xiaoguang, 2013. "Stacking low carbon policies on the renewable fuels standard: Economic and greenhouse gas implications," Energy Policy, Elsevier, vol. 56(C), pages 5-15.
    3. Ladislav Kristoufek & Karel Janda & David Zilberman, 2013. "Non-linear price transmission between biofuels, fuels and food commodities," Working Papers IES 2013/16, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2013.
    4. Niño-Zarazúa, Miguel & Chiripanhura, Blessing, 2013. "The impacts of the food, fuel and financial crises on households in Nigeria. A retrospective approach for research enquiry," MPRA Paper 47348, University Library of Munich, Germany.
    5. Wang, Xin & Lim, Michael K. & Ouyang, Yanfeng, 2015. "Infrastructure deployment under uncertainties and competition: The biofuel industry case," Transportation Research Part B: Methodological, Elsevier, vol. 78(C), pages 1-15.
    6. Moschini, GianCarlo & Cui, Jingbo & Lapan, Harvey E., 0. "Economics of Biofuels: An Overview of Policies, Impacts and Prospects," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), issue 3.
    7. Ladislav Kristoufek & Karel Janda & David Zilberman, 2012. "Mutual Responsiveness of Biofuels, Fuels and Food Prices," CAMA Working Papers 2012-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Nuñez, Hector M., 2016. "Biofuel Potential in Mexico: Land Use, Economic and Environmental Effects," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236067, Agricultural and Applied Economics Association.
    9. Huang, Yongxi & Chen, Yihsu, 2014. "Analysis of an imperfectly competitive cellulosic biofuel supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 72(C), pages 1-14.
    10. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel & Nathan C. Parker, 2013. "Unintended Consequences of Transportation Carbon Policies: Land-Use, Emissions, and Innovation," NBER Working Papers 19636, National Bureau of Economic Research, Inc.
    11. JunJie Wu & Christian Langpap, 2015. "The Price and Welfare Effects of Biofuel Mandates and Subsidies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(1), pages 35-57, September.
    12. repec:eee:enepol:v:111:y:2017:i:c:p:235-245 is not listed on IDEAS
    13. Felippe Cauê Serigati & Paulo Furquim De Azevedo, 2016. "How To Indirectly Measure Market Transaction Costs," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42ndd Brazilian Economics Meeting] 192, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    14. Okwo, Adaora & Thomas, Valerie M., 2014. "Biomass feedstock contracts: Role of land quality and yield variability in near term feasibility," Energy Economics, Elsevier, vol. 42(C), pages 67-80.
    15. Wang, Weiwei & Khanna, Madhu & Dwivedi, Puneet, 2013. "Optimal Mix of Feedstock for Biofuels: Implications for Land Use and GHG Emissions," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150736, Agricultural and Applied Economics Association.
    16. Gal Hochman & Scott Kaplan & Deepak Rajagopal & David Zilberman, 2012. "Biofuel and Food-Commodity Prices," Agriculture, MDPI, Open Access Journal, vol. 2(3), pages 1-10, September.
    17. repec:eee:eneeco:v:65:y:2017:i:c:p:148-160 is not listed on IDEAS

    More about this item

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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