Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs?

51 Pages Posted: 24 Apr 2014

See all articles by Mads Greaker

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: April 23, 2014

Abstract

Recent literature on biofuels has questioned whether biofuels policies are likely to reduce the negative effects of climate change. In this paper we make two contributions to the literature. First, we study the market effects of a renewable fuel standard in a dynamic model taking into account that oil 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 global extraction of oil is postponed as a consequence of the renewable fuel standard. Thus, if emissions from biofuels are negligible, the standard will have beneficial climate effects. Furthermore, we find that the standard also tends to reduce total fuel (i.e., oil plus biofuels) consumption initially. Hence, even if emissions from biofuels are non-negligible, a renewable fuel standard may still reduce climate costs. In fact our simulations show that even for biofuels that are almost as emissions-intensive as oil, a renewable fuel standard has beneficial climate effects.

Keywords: Blending Mandate, Renewable Fuel Standard, Biofuels, Climate Costs

JEL Classification: Q27, Q41, Q54

Suggested Citation

Greaker, Mads and Hoel, Michael and Rosendahl, Knut Einar, Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs? (April 23, 2014). FEEM Working Paper No. 32.2014. Available at SSRN: https://ssrn.com/abstract=2428100 or http://dx.doi.org/10.2139/ssrn.2428100

Mads Greaker (Contact Author)

Statistics Norway ( email )

N-0033 Oslo
Norway

Michael Hoel

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)

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

Poschinger Str. 5
Munich, DE-81679
Germany

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

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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