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Welfare Impacts of Alternative Biofuel and Energy Policies
Author(s) -
Cui Jingbo,
Lapan Harvey,
Moschini GianCarlo,
Cooper Joseph
Publication year - 2011
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aar053
Subject(s) - subsidy , economics , carbon tax , energy policy , biofuel , tax policy , welfare , mandate , natural resource economics , corn ethanol , tax credit , open economy , public economics , tax reform , greenhouse gas , ethanol fuel , macroeconomics , market economy , renewable energy , ecology , political science , law , electrical engineering , biology , engineering , exchange rate
An open‐economy equilibrium model is derived to investigate the effects of energy policy on the U.S. economy, with emphasis on corn‐based ethanol. A second best policy of a fuel tax and ethanol subsidy is found to approximate fairly closely the welfare gains associated with the first best policy of an optimal carbon tax and tariffs on traded goods. The largest economic gains to the U.S. economy from these energy policies arise from their impact on U.S. terms of trade, particularly in the oil market. Conditional on the current fuel tax, an optimal ethanol mandate is superior to an optimal ethanol subsidy.