Assessing the Welfare Effects of US Biofuel Policies
2010
Moschini, Giancarlo | Lapan, Harvey | Cui, Jingbo | Cooper, Joseph
We present a synopsis of the results of a research project that assesses the main welfare implications of US policies to support biofuels, with an emphasis on corn-based ethanol. The results are obtained from an open economy, multimarket equilibrium model that links world and domestic energy and agricultural markets, and explicitly accounts for the externalities of carbon emissions. In this context, the first-best policy in our context entails a carbon tax (implemented with a tax on fuel and a subsidy for ethanol), an import tariff on oil, and an export tax on corn. Although this policy is likely not feasible, a second-best policy with optimally chosen fuel tax and ethanol subsidy can approximate fairly closely the welfare gains associated with the first-best policy.
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