Abstract

This chapter evaluates the welfare and greenhouse-gas effects of the Renewable Fuel Standard (RFS) in the presence of biofuel subsidies. In our numerical model, demand for gasoline and ethanol stems from consumer demand for driving miles, but all fuels have congestion and environmental external costs. Our estimates of the effects of ethanol mandates on greenhouse gases and social welfare (relative to the status quo) are sensitive to assumptions about the gasoline supply elasticity. The impact of the mandate, by itself, on greenhouse gas emissions ranges from −0.5 to −5% relative to the status quo and is reduced when the mandate is accompanied by a tax credit. The welfare costs of the mandate relative to the socially optimal policy range from 60 B to 115 B depending on the elasticity of gasoline supply. The provision of a tax credit in addition to the mandate leads to additional deadweight losses that range from 1.1 to 12 billion. An ethanol mandate policy provides assured demand for ethanol and therefore supports the domestic ethanol industry, particularly the cellulosic biofuel industry. However, such policy may harm the well-being of the country as a whole, even relative to the ethanol support policy that was in place before the current mandate was passed.
Original languageEnglish (US)
Title of host publicationHandbook of Bioenergy Economics and Policy
EditorsMadhu Khanna, Jürgen Scheffran, David Zilberman
PublisherSpringer
Pages233-250
Number of pages18
ISBN (Electronic)9781441903693
ISBN (Print)9781441903686, 9781461425045
DOIs
StatePublished - 2010

Publication series

NameNatural Resource Management and Policy
Volume33
ISSN (Print)0929-127X
ISSN (Electronic)2511-8560

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  • Handbook of Bioenergy Economics and Policy

    Khanna, M. (Editor), Scheffran, J. (Editor) & Zilberman, D. (Editor), 2010, Springer. (Natural Resource Management and Policy; vol. 33)

    Research output: Book/Report/Conference proceedingBook

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