Econonomics of Energy and Environmental Policy

Article Details

IAEE Members and subscribers to Economics of Energy & Environmental Policy : Please log in to access the full text article.

The Green Paradox of U.S. Biofuel Subsidies: Impact on Greenhouse Gas Emissions

This paper presents the first comprehensive estimates of the impact of U.S. biofuel subsidies on greenhouse gas emissions. Although U.S. support for biofuels is large and growing, the associated impact on greenhouse gas emissions remains unclear. The effect of biofuel subsidies on emissions is determined by the relative magnitudes of countervailing substitution and price effects. Regulators typically ignore the price effect of biofuel policies, and therefore do not fully account for market and climate impacts. We develop an economic simulation model of U.S. energy markets to estimate the impact of biofuel subsidies on greenhouse gas emissions from 2005 through 2009. The model represents end-use consumption of oil, natural gas, coal and electricity in four sectors. We find that the subsidies for ethanol increased greenhouse gas emissions, while those for biodiesel have an ambiguous effect. Thus, ethanol subsidies create a green paradox. Although ethanol has lower lifecycle greenhouse gas emissions than gasoline, the subsidies lower the market price of blended fuel, which increases overall fuel consumption and increase total greenhouse gas emissions. These findings question the suitability of using ethanol subsidies to achieve climate goals and highlight the importance of accounting for the price effect of biofuel policies.
Purchase PDF ( $35 ) Purchase Ebook ( $35 )
Executive Summary: View

JEL Codes:Q54: Climate; Natural Disasters and Their Management; Global Warming, Q42: Alternative Energy Sources, H23: Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies

Keywords: Energy Subsidies, Greenhouse Gas Emissions, Biofuels, Energy Policy, Green Paradox

DOI: 10.5547/2160-5890.4.2.mall

Reference information is available for this article. Join IAEE or purchase the article to view reference data.

Published in Volume 4, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


© 2024 International Association for Energy Economics | Privacy Policy | Return Policy