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Biofuels production versus forestry in the presence of lobbies and technological change

Johanna Jussila Hammes ()

No 2009:7, Working Papers from Swedish National Road & Transport Research Institute (VTI)

Abstract: We study the political determination of a hypothetical land tax, which internalises a negative environmental externality from biofuels. The tax allocates land from biofuels towards forestry. Lobbying affects the tax rate, so that the sector with the lower elasticity of land demand determines the direction in which the tax deviaties from the social optimum. Lobbying by the sector with higher elasticity of land demand cancels partly out the other sector's lobbying. The politically optimal tax rate is "self-enhancing" in that the tax lowers the elasticity of land demand in the sector which initially had a lower elasticity, and raises it in the other sector. This can dwarf the government's other attempts to support the production of biofuels. Finally, technological progress in biofuels serves to strengthen that sector by lowering its elasticity of land demand, and weakens the forestry sector by raising its elasticity of land demand. Depending on the initial tax rate, this can be welfare enhancing or lowering. Furthermore, it can lead to excessive deforestation.

Keywords: Biofuels; forestry; land use; political economy; technological change (search for similar items in EconPapers)
JEL-codes: D78 H23 O13 O30 Q15 Q23 Q24 Q42 Q55 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2009-07-08
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:vtiwps:2009_007

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