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The Effect of Biofuels on the International Oil Market
Author(s) -
Hochman Gal,
Rajagopal Deepak,
Zilberman David
Publication year - 2011
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.1093/aepp/ppr016
Subject(s) - cartel , biofuel , economics , consumption (sociology) , greenhouse gas , fossil fuel , fuel efficiency , natural resource economics , agricultural economics , international economics , international trade , microeconomics , chemistry , engineering , biology , incentive , aerospace engineering , ecology , social science , organic chemistry , sociology
This paper derives a method to quantify the impact of biofuels on fuel markets, assuming that these markets are dominated by a cartel of oil‐rich countries and that fuel prices in these countries are significantly lower than those in the rest of the world. We identify large differences between the effects of introducing biofuels using the proposed method (denoted the cartel‐of‐nations [CON] model), in contrast to the competitive or the standard cartel models. When compared with the CON model, the competitive model overestimates the reduction in fuel prices and underestimates the reduction in fuel consumption, and therefore the impact of biofuels on greenhouse gases.