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Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs?

45 Pages Posted: 3 Jan 2013  

Mads Greaker

Statistics Norway

Michael Hoel

University of Oslo; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: December 28, 2012

Abstract

Recent contributions have questioned whether biofuels policies actually lead to emissions reductions, and thus lower climate costs. In this paper we make two contributions to the literature. First, we study the market effects of a renewable fuel standard. Opposed to most previous studies we model the supply of fossil fuels taking into account that fossil fuels is a non-renewable resource. Second, we model emissions from land use change explicitly when we evaluate the climate effects of the renewable fuel standard. We find that extraction of fossil fuels most likely will decline initially as a consequence of the standard. Thus, if emissions from biofuels are sufficiently low, the standard will have beneficial climate effects. Furthermore, we find that the standard tends to reduce total fuel (i.e., oil plus biofuels) consumption initially. Hence, even if emissions from biofuels are substantial, climate costs may be reduced. Finally, if only a subset of countries introduce a renewable fuel standard, there will be carbon leakage to the rest of the world. However, climate costs may decline as global extraction of fossil fuels is postponed.

Keywords: biofuel, renewable fuel standard, fossil fuel

JEL Classification: Q200, Q320, Q400, Q420

Suggested Citation

Greaker, Mads and Hoel, Michael and Rosendahl, Knut Einar, Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs? (December 28, 2012). CESifo Working Paper Series No. 4030. Available at SSRN: https://ssrn.com/abstract=2195469

Mads Greaker

Statistics Norway ( email )

N-0033 Oslo
Norway

Michael Hoel (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

University of Oslo ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+ 47 22 85 83 87 (Phone)
+ 47 22 85 50 35 (Fax)

Knut Einar Rosendahl

Norwegian University of Life Sciences ( email )

PO Box 5033
NO-1432 Aas
Norway
+47 64966117 (Phone)

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway
+47 21094954 (Phone)
+47 21094963 (Fax)

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