Path dependence: Biofuels policy under uncertainty about greenhouse gas emissions

Johanna Jussila Hammes ()

No 2011:1, Working Papers from Swedish National Road & Transport Research Institute (VTI)

Abstract: We study the effect of uncertainty about the greenhouse gas emissions arising from the production of biofuels on trade policy, in the presence of lobby groups and two policy instruments, trade policy and biofuels mandates. We show that in the presence of biofuels mandates it would be optimal from a societal point of view to lower the trade tariff on biofuels when the emissions from their production are shown to be 'high' as compared to when they are believed to be 'low'. If the government is susceptible to lobbying, the tariff may be raised instead. We further show that at subsequent time periods, the biofuels sector's marginal lobbying effort will not fall compared to previous periods, and that consequently, its political contribution also does not fall. Finally we show how policy may be path dependent, i.e., that earlier tariff rates in part determine future tariff rates if the government is susceptible to lobbying and given that the domestic price of biofuels does not fall. The model can, e.g., shed light on why the EU does not lower the tariffs on Brazilian ethanol in the face of new information.

Keywords: path dependence; trade policy; biofuels mandate; political economics (search for similar items in EconPapers)
JEL-codes: D72 F18 H23 H25 P16 Q42 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2011-01-12
New Economics Papers: this item is included in nep-ene and nep-env
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http://www.transportportal.se/SWoPEc/Emissions_unc ... 1_JJussilaHammes.pdf (application/pdf)

Related works:
Working Paper: Path dependence: Biofuels policy under uncertainty about greenhouse gas emissions (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:vtiwps:2011_001

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