Farzad Taheripour

Market and Social Welfare Effects of the Renewable Fuels Standard

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

Biofuels, Policy Options, and Their Implications: Analyses Using Partial and General Equilibrium Approaches

60 B to

Comparison of fixed versus variable biofuels incentives

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

Biofuels, cropland expansion, and the extensive margin

1.1 to

Welfare Impacts of Alternative Public Policies for Agricultural Pollution Control in an Open Economy: A General Equilibrium Framework

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.

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

The biofuel industry has been experiencing a period of extraordinary growth, fueled by a combination of high oil prices, ambitious renewable fuel standards, subsidies, and import protection. This rapid growth has important consequences for the US and global economies. In this paper, we examine these consequences from partial and general equilibrium perspectives. We first examine US biofuel policy backgrounds to determine factors which caused the boom in the ethanol industry in recent years. Then we use a partial equilibrium model to investigate the economic consequences of further expansion in the ethanol industry for the key economic variables of the US agricultural and energy markets under alternative policy options which might be used to promote ethanol production in the future. Finally, we extend our analyses to examine consequences of further biofuel production at a global scale. One of the important conclusions of the research regards the importance of the link between energy and agricultural markets that has now come into being. That linkage has profound implications for the agricultural sector globally.

Fiscal Reforms in General Equilibrium: Theory and an Application to the Subsidy Debate in Iran

We evaluated several variants of a variable biofuel subsidy and compared them with the fixed subsidy and Renewable Fuel Standard using two different modeling approaches. First we used a partial equilibrium model encompassing crude oil, gasoline, ethanol, corn, and ethanol by-products. Second, we used a stochastic simulation model of a prototypical ethanol plant. From the partial equilibrium analysis, it appears the variable subsidy provides a safety net for ethanol producers when oil prices are low; yet, it does not put undue pressure on corn prices when oil prices are high. At high oil prices, the level of ethanol production is driven by market forces. From the plant level stochastic analysis, essentially the same conclusions are reached. As with the fixed subsidy, the variable subsidy can increase the net present value (NPV) sufficiently to encourage investment, but with lower risk for the producer, lower probability of a loss from the investment, and often lower expected cost to government. Finally, in the US, the ethanol industry is up against a blending limit called the blend wall. If the blending wall remains in place and no way around it is found, it does not matter much what other policy options are used.

Analyzing Future Water Scarcity in Computable General Equilibrium Models

BackgroundRecently, several papers have assessed land use consequences of biofuel expansion. In the absence of empirical evidence, these papers assigned subjective values to extensive margin (productivity of new croplands over productivity of existing croplands).MethodsThis paper fills the gap in this area and provides a new data set which estimates land productivity at 0.5° × 0.5° (longitude × latitude) grid-cell level using a process-based biogeochemistry model, the terrestrial ecosystem model (TEM) calibrated for a C4 crop.ResultsThe results obtained from the TEM can be used in connection with economic models which are designed to assess land use changes induced by economic factors. To show a real application, a set of regional extensive margins are calculated based on the new data set. The calculated regional extensive margins are then introduced in a computable general equilibrium (CGE) economic model which has been frequently used to assess the land use implications of ethanol production. Finally, land use changes due to US ethanol production are examined using the augmented CGE model with the new extensive margins.ConclusionsThe approach developed here provides estimates of extensive margins disaggregated by the country and agroecological zone, replacing the earlier assumption of a globally uniform value. Using these new parameter values, the estimation of land required for ethanol production is 25% lower than earlier published results.

Chapter 6 Modeling Biofuels Policies in General Equilibrium: Insights, Pitfalls, and Opportunities

A general equilibrium approach is used to evaluate the welfare impacts of alternative policies for reducing agricultural pollution in an open economy with preexisting distortions caused by income taxes and agricultural subsidies. The policies examined here include the removal of distortionary agricultural subsidies. We find that even though these distortions are small compared to others in the economy, removing them and imposing nitrogen reduction subsidies and/or output taxes can enhance welfare and reduce nitrogen pollution; thereby leading to a substantial double dividend. The relative efficiency of the alternative policies examined here depends on the level of the nitrogen reduction target. Copyright 2008, Oxford University Press.

The contribution of glyphosate to agriculture and potential impact of restrictions on use at the global level

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.