Abstract
This chapter compares the cost and greenhouse gas (GHG) mitigation benefits of corn ethanol in the United States relative to sugarcane ethanol produced in Brazil and develops a stylized model to analyze its implications for the impact of US biofuel policies on social welfare and GHG emissions. The policies considered here include the $0.51 per gallon blender’s subsidy for ethanol and the import tariff of $0.54 per gallon on sugarcane ethanol. Our analysis shows that the combined subsidy and tariff policy decreases welfare by about $3 B depending on assumptions about the extent of market power the United States has in the world ethanol market. These policies also provide negligible (in some cases negative) benefits in the form of GHG reduction. The results indicate that the United States would gain from removing domestic and trade distortions in the ethanol market. Increasing ethanol demand in the world market will entail expansion of Brazil’s ethanol industry. We briefly discuss concerns about the environmental impacts of this expansion.
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Notes
- 1.
Welfare refers to social surplus defined as the sum of consumer and producer surplus, and government revenue.
- 2.
Note that the alternative gasoline fuel also contains 20–25% ethanol so that pure ethanol contains 71–73% of the energy content in the alternative gasoline-ethanol blend.
- 3.
This estimate includes cost of feedstock and processing, without capital expenses.
- 4.
Value converted from original source assuming 80 metric tons of ethanol per ha and a ton = 32 gallons.
- 5.
Actual numbers reported are 376–396 CO2-eq per cubic m with a range of 498 (worst case) to 282 (best case) CO2-eq per cubic m of ethanol. Figure converted from original source assuming 1cubic m = 264.1 gallons.
- 6.
Actual number reported is 436 kg CO2 eq per m3. Figure converted from original source assuming 1m3=264.
- 7.
We use the results where the US has market power since De Gorter and Just and Elobeid and Tokgoz both assume an upward sloping excess supply curve.
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Lasco, C., Khanna, M. (2010). US–Brazil Trade in Biofuels: Determinants, Constraints, and Implications for Trade Policy. In: Khanna, M., Scheffran, J., Zilberman, D. (eds) Handbook of Bioenergy Economics and Policy. Natural Resource Management and Policy, vol 33. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-0369-3_15
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