BIOFUELS AND LEAKAGES IN THE FUEL MARKET

Dusan Drabik () and Harry de Gorter ()

No 91265, 2010: Climate Change in World Agriculture: Mitigation, Adaptation, Trade and Food Security, June 2010, Stuttgart-Hohenheim, Germany from International Agricultural Trade Research Consortium

Abstract: Leakage in the fuel market differs, depending on whether ethanol production is determined by a tax credit or consumption mandate. Two components of market leakage are distinguished: domestic and international. Leakage with both a tax credit and a consumption mandate depends on market elasticities and consumption/production shares, with the former having a bigger impact. Leakage is also more sensitive to changes in market supply and demand elasticities in the country not introducing biofuels. Although positive with a tax credit, market leakage can be negative with a consumption mandate, meaning that one gallon of ethanol can replace more than a gallon of gasoline. We also show that being a small country biofuels producer does not necessarily mean that leakage for this country is 100 percent. Our numerical estimates show that one gallon of ethanol replaces approximately 0.2-0.3 gallons of gasoline in the U.S.

Keywords: Agricultural and Food Policy; Crop Production/Industries; Environmental Economics and Policy; International Relations/Trade; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 39
Date: 2010
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:iatr10:91265

DOI: 10.22004/ag.econ.91265

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