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Impact of U.S. Biofuel Policy in the Presence of Drastic Climate Conditions

Hector Nuñez () and Andres Trujillo-Barrera

No DTE 585, Working papers from CIDE, División de Economía

Abstract: We analyze the impact of total and partial waivers of the U.S. Renewable Fuel Standard (RFS) under uncertain changes in climate conditions that affects crop yields distributions. The main model results show that reducing RFS would make world agricultural consumers better off, and increase U.S. corn share in the world market, while slightly decrease agricultural commodity prices, but the higher the RFS reduction the higher the uncertainty on the price changes. On the other hand, price changes would make ethanol and agricultural producers face losses as well as increase gasoline consumption and, therefore, bringing larger environmental damages. Overall RFS reduction generates negative changes in total economic surplus, specifically, RFS reductions up to 40 percent generate significant changes in the socioeconomic variables, however any reductions beyond 40 percent do not appear to bring further changes, although welfare results appear more uncertain under an increased reduction.

Keywords: Biofuel Policy; Climate Uncertainty; Crop Commodity Markets (search for similar items in EconPapers)
JEL-codes: Q10 Q48 Q54 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2015-03
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
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