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The Implications of Alternative Biofuel Policies on Carbon Leakage
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The Implications of Alternative Biofuel Policies on Carbon Leakage

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  • Drabik, Dusan
  • de Gorter, Harry
  • Just, David R.

Abstract

We show how leakage differs, depending on the biofuel policy and market conditions. Carbon leakage is shown to have two components: a market leakage effect and an emissions savings effect. We also distinguish domestic and international leakage and show how omitting the former like the IPCC does can bias leakage estimates. International leakage is always positive, but domestic leakage can be negative. The magnitude of market leakage depends on the domestic and foreign gasoline supply and fuel demand elasticities, and on consumption and production shares of world oil markets for the country introducing the biofuel policy. Being a small country in world oil markets does not automatically imply that leakage is 100 percent or above that of a large country. We show leakage due to a tax credit is always greater than that of a mandate, while the combination of a mandate and subsidy generates greater leakage than a mandate alone. In general, one gallon of ethanol is found to replace only 0.35 gallons of gasoline – not one gallon as assumed by life-cycle accounting. For the United States, this translates into one (gasoline-equivalent) gallon of ethanol emitting 1.13 times more carbon than a gallon of gasoline if indirect land use change (iLUC) is not included in the estimated emissions savings effect and 1.43 times more when iLUC is included.

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  • Drabik, Dusan & de Gorter, Harry & Just, David R., 2010. "The Implications of Alternative Biofuel Policies on Carbon Leakage," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 102689, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea11:102689
    DOI: 10.22004/ag.econ.102689
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    6. Drabik, Dusan & de Gorter, Harry, 2010. "Biofuels And Leakages In The Fuel Market," 2010: Climate Change in World Agriculture: Mitigation, Adaptation, Trade and Food Security, June 2010, Stuttgart-Hohenheim, Germany 91265, International Agricultural Trade Research Consortium.
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    8. Harry de Gorter & David R. Just, 2007. "The Welfare Economics of a Biofuel Tax Credit and the Interaction Effects with Price Contingent Farm Subsidies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(2), pages 477-488.
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    Cited by:

    1. Janda, Karel & Kristoufek, Ladislav & Zilberman, David, "undated". "Biofuels: review of policies and impacts," CUDARE Working Papers 120415, University of California, Berkeley, Department of Agricultural and Resource Economics.
    2. Bilgili, Faik & Koçak, Emrah & Bulut, Ümit & Kuşkaya, Sevda, 2017. "Can biomass energy be an efficient policy tool for sustainable development?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 71(C), pages 830-845.
    3. de Gorter, Harry & Drabik, Dusan & Just, David R., 2011. "Modeling Carbon Leakages with Forestation Policies," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114450, European Association of Agricultural Economists.
    4. Karel Janda & Ladislav Kristoufek & David Zilberman, 2012. "Biofuels: policies and impacts," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 58(8), pages 372-386.
    5. Drabik, Dusan & de Gorter, Harry & Timilsina, Govinda R., 2016. "Producing biodiesel from soybeans in Zambia: An economic analysis," Food Policy, Elsevier, vol. 59(C), pages 103-109.
    6. Drabik, Dusan, 2011. "The Theory of Biofuel Policy and Food Grain Prices," Working Papers 126615, Cornell University, Department of Applied Economics and Management.
    7. Haroon Bhorat & Ravi Kanbur & Natasha Mayet, 2013. "A Note on Measuring the Depth of Minimum Wage Violation," LABOUR, CEIS, vol. 27(2), pages 192-197, June.
    8. Karel Janda & Ladislav Kristoufek & David Zilberman, 2011. "Modeling the Environmental and Socio-Economic Impacts of Biofuels," Working Papers IES 2011/33, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2011.
    9. de Gorter, Harry & Drabik, Dusan & Timilsina, Govinda R., 2013. "Should Zambia produce biodiesel from soybeans ? some insights from an empirical analysis," Policy Research Working Paper Series 6498, The World Bank.
    10. Abdul-Manan, Amir F.N., 2017. "Lifecycle GHG emissions of palm biodiesel: Unintended market effects negate direct benefits of the Malaysian Economic Transformation Plan (ETP)," Energy Policy, Elsevier, vol. 104(C), pages 56-65.
    11. Khanna, Madhu & Hector, Nunez & David, Zilberman, 2014. "The Political-Economy of Biofuel and Cheap Oil Policies in Brazil," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169471, Agricultural and Applied Economics Association.
    12. de Gorter, Harry & Drabik, Dusan & Just, David R., 2011. "Carbon Leakage with Forestation Policies," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103797, Agricultural and Applied Economics Association.
    13. Ladislav Kristoufek & Karel Janda & David Zilberman, 2013. "Regime-dependent topological properties of biofuels networks," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 86(2), pages 1-12, February.
    14. Oladosu, Gbadebo, 2012. "Estimates of the global indirect energy-use emission impacts of USA biofuel policy," Applied Energy, Elsevier, vol. 99(C), pages 85-96.
    15. Bento, Antonio M. & Klotz, Richard & Landry, Joel R., 2011. "Are there Carbon Savings from US Biofuel Policies? Accounting for Leakage in Land and Fuel Markets," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 104008, Agricultural and Applied Economics Association.

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    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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