The Social Costs and Benefits of Biofuels: The Intersection of Environmental, Energy and Agricultural Policy

Posted: 22 Feb 2010

See all articles by Harry de Gorter

Harry de Gorter

Cornell University - School of Applied Economics and Management

David R. Just

Cornell University - Dyson School of Applied Economics and Management

Date Written: Spring 2010

Abstract

The efficacy of alternative biofuel policies in achieving energy, environmental and agricultural policy goals is assessed using economic cost-benefit analysis. Government mandates are superior to consumption subsidies, especially with suboptimal fuel taxes and the higher costs involved with raising tax revenues. But subsidies with mandates cause adverse interaction effects; oil consumption is subsidized instead. This unique result also applies to renewable electricity that faces similar policy combinations. Ethanol policy can have a significant impact on corn prices; if not, inefficiency costs rise sharply. Ethanol policy can increase the inefficiency of farm subsidies and vice-versa. Policies that discriminate against trade, such as production subsidies and tariffs, can more than offset any benefits of a mandate. Sustainability standards are ineffective and illegal according to the WTO, and so should be re-designed.

Keywords: biofuels, mandates, subsidies, tariffs, externalities, greenhouse gases, traffic congestion, air pollution, burden of taxation, H21, H23, R48, Q48, Q54, Q56

Suggested Citation

de Gorter, Harry and Just, David R., The Social Costs and Benefits of Biofuels: The Intersection of Environmental, Energy and Agricultural Policy (Spring 2010). Applied Economic Perspectives and Policy, Vol. 32, Issue 1, pp. 4-32, 2010. Available at SSRN: https://ssrn.com/abstract=1556178 or http://dx.doi.org/ppp010

Harry De Gorter

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States
607-255-8076 (Phone)

David R. Just

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States
607-255-2086 (Phone)
607-255-9984 (Fax)

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