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Welfare Assessment of the Renewable Fuel Standard: Economic Efficiency, Rebound Effect, and Policy Interactions in a General Equilibrium Framework

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Modeling, Dynamics, Optimization and Bioeconomics I

Part of the book series: Springer Proceedings in Mathematics & Statistics ((PROMS,volume 73))

Abstract

In this paper, we have shown that partial equilibrium evaluations of biofuels policies can lead to misleading results. We develop a stylized theoretical model to show how a general equilibrium setup can improve the analysis of price, welfare, rebound, and other impacts. We then implement an empirical analysis of the US corn ethanol mandate and show that inclusion of agricultural subsidies and income tax impacts are very important. Previous work has seriously underestimated the price impacts on coarse grains because the financing of the implicit subsidy did not consider the reduction of agricultural subsidies. Also, other studies in the literature have estimated huge gasoline price decreases due to the US ethanol program. We show that the gasoline price impact is essentially negligible. These other studies did not include all the economy wide impacts. We also show the rebound, trade, and welfare impacts of the policy cases. The land use impact varies significantly with implemented ethanol policy, but the welfare impacts do not differ meaningfully across the cases.

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Notes

  1. 1.

    The deadweight losses mention here belongs to changes in ethanol market. Ethanol subsidy could affect consumers and producers surpluses in other markets as well. A partial equilibrium model can trace the changes in consumers and producers surpluses in few other markets such as markets for corn and E10, but they fail to capture the welfare impacts through the entire economy.

  2. 2.

    A similar approach is used in [9, 18]. The decomposition process used in this paper is available upon request from the authors.

  3. 3.

    The model is an advanced version of GTAP-BIO model which developed by Taheripour et al. [19], Hertel et al. [10] Taheripour et al. [20], Tyner et al. [21].

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Author information

Authors and Affiliations

  1. Department of Agricultural Economics, Purdue University, 403 West State St., West Lafayette, IN, 47907-2056, USA

    Farzad Taheripour & Wallace E. Tyner

Authors
  1. Farzad Taheripour
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  2. Wallace E. Tyner
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Correspondence to Farzad Taheripour .

Editor information

Editors and Affiliations

  1. University of Porto, Department of Mathematics, Porto, Portugal

    Alberto Adrego Pinto

  2. Univ. of California, Dept. of Agricultural and Resource Economics, Berkeley, California, USA

    David Zilberman

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Taheripour, F., Tyner, W.E. (2014). Welfare Assessment of the Renewable Fuel Standard: Economic Efficiency, Rebound Effect, and Policy Interactions in a General Equilibrium Framework. In: Pinto, A., Zilberman, D. (eds) Modeling, Dynamics, Optimization and Bioeconomics I. Springer Proceedings in Mathematics & Statistics, vol 73. Springer, Cham. https://doi.org/10.1007/978-3-319-04849-9_36

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