How Policies Affect International Biofuel Price Linkages
30 Pages Posted: 17 Oct 2011
Date Written: October 16, 2011
We estimate the role of biofuel policies in determining which country is the biofuel price leader in world markets using a cointegration analysis and the Vector Error Correction (VEC) model. Weekly prices are analyzed for the EU, U.S, and Brazilian ethanol and biodiesel markets for the 2002-2010 and 2005-2010 time periods, respectively. The U.S. blender’s tax credit and consumer tax exemption in Brazil appear to play a role in determining the ethanol prices in other countries. For biodiesel, our results demonstrate that the EU policies – consumer tax exemption and blend target – tend to form the world biodiesel price.
Keywords: biofuels, biofuel polices, mandate, tax credit, tax exemption, price leadership, VEC
JEL Classification: C32, Q16, Q17, Q47
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