Hostname: page-component-76fb5796d-x4r87 Total loading time: 0 Render date: 2024-04-27T00:53:35.328Z Has data issue: false hasContentIssue false
  • English
  • Français

The Relative Impacts of U.S. Bio-Fuel Policies on Fuel-Energy Markets: A Comparative Static Analysis

Published online by Cambridge University Press:  26 January 2015

C.S. Kim ,
Glenn Schaible  and
Stan Daberkow
C.S. Kim
Affiliation:
Economic Research Service, United States Department of Agriculture, Washington, DC
Glenn Schaible
Affiliation:
Economic Research Service, United States Department of Agriculture, Washington, DC
Stan Daberkow
Affiliation:
Economic Research Service, United States Department of Agriculture, Washington, DC
Get access

Abstract

Rapidly declining gasoline prices from their record high during the summer of 2008, while ethanol prices remained relatively high, made it difficult for many bio-fuel policy modelers to fully explain the impacts of U.S. bio-fuel policies on fuel prices. Using profit-maximization models for blenders, refiners, and distillers, we conduct a comparative static analysis to measure the relative magnitudes of the impacts of tax credits and blending mandates on fuel-energy market equilibrium prices. Our results indicate that first, the prices of all fuels including conventional gasoline, ethanol, and blended gasoline decline as the biofuel tax credit increases, but they increase as the rate of the blending mandate increases. Second, the shadow value of a blending mandate represents the marginal rate of substitution between the marginal price change associated with a blending mandate and the marginal price change associated with a bio-fuel tax credit. Therefore, bio-fuel policies can affect the prices of all fuels including conventional gasoline, ethanol, and blended gasoline. Finally, ethanol imports are affected by domestic blender's market-power effects, more than by the import duty imposed to offset the tax credit associated with the use of imported ethanol in the blending process.

Keywords

bio-fuel tax creditsblended gasolineblender's market powermandated blendingtariffQ11Q21Q42Q48
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 42 , Issue 1 , February 2010 , pp. 121 - 132
Copyright
Copyright © Southern Agricultural Economics Association 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Blanch, F. “As Biofuels Catch On, Next Task Is to Deal With Environmental, Economic Impact.” Wall Street Journal, March 24, 2008.Google Scholar
Cooper, M. Consumer Federation of America. “Slashing Ethanol Production would Raise Gasoline Prices Consumer Group Warns EPA.” Internet site: http://blog.foodpricetruth.org/?p=108 (Accessed August 7, 2008).Google Scholar
de Gorter, H., and Just, D. “The Economics of A Blended Mandate for Biofuels.” American Journal of Agricultural Economics 91,3(2009a): 738–50.10.1111/j.1467-8276.2009.01275.xGoogle Scholar
de Gorter, H., and Just, D. “The Welfare Economics of a Biofuel Tax Credit and the Interaction Effects with Price Contingent Farm Subsidies.” American Journal of Agricultural Economics 91,2(2009b):477-88.Google Scholar
Donovan, B.J. “Independent U.S. Ethanol Producers will Not Survive as Price Takers.” News Blaze. Internet site: http://newsblaze.com/story/20090807091234zzzz.nb/topstory.html (Accessed August 20, 2009).Google Scholar
Du, X., and Hayes, D.J. “The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry.” Center for Agricultural and Rural Development, Iowa State University. Selected paper presented at the Agricultural and Applied Economics Association meetings, Orlando, FL, July 27-29, 2008.10.2172/1218362Google Scholar
Energy Information Administration. U.S. Department of Energy, “Energy Kid's Page.” Internet site: http://www.eia.doe.gov/kids/energyfacts/sources/non-renewable/oil.html (Accessed February 21, 2008).Google Scholar
Gardner, T. “High Ethanol Price to Test, Not Break, U.S. Mandate.” Reuters, Gregorio, David, ed. Internet site: http://www.reuters.com/article/idUSTRE4B18DT20081202 (Accessed December 2, 2008).Google Scholar
Hartwig, M. “Just the Facts: Ethanol Markets.” Renewable Fuels Association, June 26, 2006. Internet site: http://www.ethanolrfa.org/objects/documents/746/justthefacts-Markets.pdf.Google Scholar
Kim, C.S., Schaible, G., and Daberkow, S. “Modelling the Effects of U.S. Bio-fuel Policies on Commodity and Energy Markets.” The Economic Impact of Public Support to Agriculture: An International Perspective, Chapter 10. New York: Springer. April/May 2010.Google Scholar
Koplow, D. Biofuels-At What Cost? Government Support f or Ethanol and Biodiesel in the United States. Cambridge, MA: Earth Track, Inc., 2006.Google Scholar
Lieberman, B. The Heritage Foundation, “Time for Second Thoughts on the Ethanol Mandate.” WebMemo, No. 1879. Internet site: http://www.heritage.org/Research/EnergyandEnvironment/wml879.cfm (Accessed April 2, 2008).Google Scholar
Renewable Fuels Association. Estimating the Impact of Increased Ethanol Production on U.S. Household Spending. Internet site: http://www.ethanolrfa.org/documents/EthanolandHouseholdSpending_000.pdf (Accessed 2008a).Google Scholar
Schmitz, A., Moss, C.B., and Schmitz, T.G. “Ethanol: No Free Lunch.” Journal of Agricultural & Food Industrial Organization, Vol. 5, Article 3, 2007. Internet site: http://www.bepress.com/jafio/vol5/iss2/art3.Google Scholar
Taheripour, F., and Tyner, W. “Ethanol Subsidies, Who Gets the Benefits?” Bio-Fuels, Food and Feed Tradeoffs Conference, St. Louis, MO, April 12-13, 2007.Google Scholar
Tiffany, D.G., and Eidman, V.R. “Factors Associated with Success of Fuel Ethanol Producers.” Staff Paper P03-7. Department of Applied Economics, University of Minnesota, 2003.Google Scholar
Tyner, W.E., and Taheripour, F. “Policy Options for Integrated Energy and Agricultural Markets.” Review of Agricultural Economics 30(2008):387-96.Google Scholar
U.S. Environmental Protection Agency. Internet site: http://www.epa.gov/otaq/renewablefuels/#regulations (Accessed November 28, 2008).Google Scholar
Vedenov, D., and Wetgstein, M. “Toward an Optimal U.S. Ethanol Fuel Subsidy.” Energy Economics 30,5(2008):2073-90.10.1016/j.eneco.2007.02.004Google Scholar
Westhoff, P. “The Energy Independence and Security Act of 2007: Preliminary Evaluation of Selected Provisions,” Congressional Staff Report, FAPRI-MU #01-08, Food and Agricultural Policy Research Institute, University of Missouri, 2008.Google Scholar
Yacobucci, B.D. “Biofuels Incentives: A Summary of Federal Programs.” CRS Report for Congress, Congressional Research Service, July 25, 2006.Google Scholar
Yacobucci, B.D., and Schnepf, R. “Ethanol and Biofuels: Agriculture, Infrastructure, and Market Constraints Related to Expanded Production.” CRS Report for Congress, Congressional Research Service, 2007.Google Scholar
zFacts. The Wholesale Price of Ethanol. Internet site: http://zfacts.eom/p/438.html (Accessed September 24, 2008).Google Scholar