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The Relative Impacts of U.S. Bio-Fuel Policies on Fuel-Energy Markets: A Comparative Static Analysis
- Rapidly declining gasoline prices from their record high during the summer of 2008, while ethanol prices remained relatively high, made it difficult for many bio-fuel policy modelers to fully explain the impacts of U.S. bio-fuel policies on fuel prices. Using profit-maximization models for blenders, refiners, and distillers, we conduct a comparative static analysis to measure the relative magnitudes of the impacts of tax credits and blending mandates on fuel-energy market equilibrium prices. Our results indicate that first, the prices of all fuels including conventional gasoline, ethanol, and blended gasoline decline as the biofuel tax credit increases, but they increase as the rate of the blending mandate increases. Second, the shadow value of a blending mandate represents the marginal rate of substitution between the marginal price change associated with a blending mandate and the marginal price change associated with a bio-fuel tax credit. Therefore, bio-fuel policies can affect the prices of all fuels including conventional gasoline, ethanol, and blended gasoline. Finally, ethanol imports are affected by domestic blender’s market-power effects, more than by the import duty imposed to offset the tax credit associated with the use of imported ethanol in the blending process.
Kim, C.S. , Schaible, Glenn , Daberkow, Stan
biofuels , ethanol production , agricultural policy , market analysis , laws and regulations , profitability , mathematical models , equations , taxes , subsidies , economic incentives , tariffs , United States
- Includes references
- Journal of agricultural and applied economics 2010 Feb., v. 42, no. 1
Journal Articles, USDA Authors, Peer-Reviewed
- Works produced by employees of the U.S. Government as part of their official duties are not copyrighted within the U.S. The content of this document is not copyrighted.