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Effect of soil heterogeneity on the welfare economics of biofuel policies

Vincent Martinet

No 2012-13, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: Biofuel policies (blend mandate or tax credit) have impacts on food and energy prices, and on land-use. The magnitude of these effects depends on the market response to price, and thus on the agricultural supply curve, which, in turn, depends on the land availability (quantity and agronomic quality). To understand these relationships, we develop a theoretical framework with an explicit representation of land heterogeneity. The elasticity of the supply curve is shown to be non-constant, depending on land heterogeneity and the availability of land for agricultural expansion. This influences the welfare economics of biofuels policies, and the possible carbon leakage in land and fuel markets. We emphasize that the impacts of biofuel policies on welfare and land-use change depend strongly on the potential development of the agricultural sector in terms of expansion and intensification, and not only on its current size.

Keywords: Agricultural and energy market; Biofuels; Land use; Soil heterogeneity; Welfare (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
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