Christine L. Crago

Can Biofuels be a Solution to Climate Change? The Implications of Land Use Change Related Emissions for Policy

Biofuels have gained increasing attention as an alternative to fossil fuels for several reasons, one of which is their potential to reduce the greenhouse gas (GHG) emissions from the transportation sector. Recent studies have questioned the validity of claims about the potential of biofuels to reduce GHG emissions relative to the liquid fossil fuels they are replacing when emissions owing to direct (DLUC) and indirect land use changes (ILUC) that accompany biofuels are included in the life cycle GHG intensity of biofuels. Studies estimate that the GHG emissions released from ILUC could more than offset the direct GHG savings by producing biofuels and replacing liquid fossil fuels and create a ‘carbon debt’ with a long payback period. The estimates of this payback period, however, vary widely across biofuels from different feedstocks and even for a single biofuel across different modelling assumptions. In the case of corn ethanol, this payback period is found to range from 15 to 200 years. We discuss the challenges in estimating the ILUC effect of a biofuel and differences across biofuels, and its sensitivity to the assumptions and policy scenarios considered by different economic models. We also discuss the implications of ILUC for designing policies that promote biofuels and seek to reduce GHG emissions. In a first-best setting, a global carbon tax is needed to set both DLUC and ILUC emissions to their optimal levels. However, it is unclear whether unilateral GHG mitigation policies, even if they penalize the ILUC-related emissions, would increase social welfare and lead to optimal emission levels. In the absence of a global carbon tax, incentivizing sustainable land use practices through certification standards, government regulations and market-based pressures may be a viable option for reducing ILUC.

Welfare Effects of Biofuels Trade Policy in the Presence of Environmental Externalities

We develop a stylized model of fuel markets in an open economy and derive the optimal mix of trade and environmental policy instruments for biofuels and gasoline that maximizes social surplus and internalizes externalities from miles and greenhouse gas (GHG) emissions. We use this optimal scenario as a benchmark to compare existing and alternative biofuel policies including the import tariff and the tax credit for ethanol. We show that the optimal tax for fuels is directly related to their GHG emissions intensity while the optimal tariff is inversely related to the excess supply elasticity of imported ethanol. The effect of the tax credit on social surplus is clearly negative, while the impact of the tariff depends on the ability of the US to influence ethanol prices in the world market. Our numerical simulation for the US shows that current ethanol policy of an ethanol tax credit and import tariff increases miles externalities and greenhouse gases and decreases social surplus by

Competitiveness of Brazilian Sugarcane Ethanol Compared to US Corn Ethanol

3.6 B relative to non-intervention and by

Measuring the Welfare Impact of Biofuel Policies: A Review of Methods and Findings from Numerical Models

228 B relative to the optimal scenario.

Competitiveness of Brazilian sugarcane ethanol compared to US corn ethanol

Corn ethanol produced in the US and sugarcane ethanol produced in Brazil are the world’s leading sources of biofuel. Current US biofuel policies create both incentives and constraints for the import of ethanol from Brazil, and together with the competitiveness and greenhouse gas intensity of sugarcane ethanol compared to corn ethanol will determine the extent of these imports. This study analyzes the supply-side determinants of this competitiveness and compares the greenhouse gas intensity of corn ethanol and sugarcane ethanol delivered to US ports. We find that while the cost of sugarcane ethanol production in Brazil is lower than that of corn ethanol in the US, the inclusion of transportation costs for the former and co-product credits for the latter changes their relative competitiveness. We also find that the relative cost of ethanol in the US and Brazil is highly sensitive to the prevailing exchange rate and prices of feedstocks. At an exchange rate of US

Measuring Indirect Land Use Change with Biofuels: Implications for Policy

1 = R

Are policy incentives for solar power effective? Evidence from residential installations in the Northeast

2.15 the cost of corn ethanol is 15% lower than the delivered cost of sugarcane ethanol at a US port. Sugarcane ethanol has lower GHG emissions than corn ethanol but a price of over

Carbon abatement in the fuel market with biofuels: Implications for second best policies

113 per ton of CO2 is needed to affect competitiveness.

Can India Meet Biofuel Policy Targets? Implications for Food and Fuel Prices

The welfare impact of biofuel policies in the US has received considerable attention in the past several years due to the cost of these policies as well as their possible contribution to rising food prices and deforestation. This chapter discusses the various modeling approaches used to measure the welfare impact of biofuel policies and summarizes findings of the literature on the subject. Welfare analyses of biofuel policies have evolved with changing regulation and new findings about the economic and environmental impacts of biofuel policies. Future research is needed to address the long-term welfare implications of biofuel policies on energy security.