Thursday, July 1, 2010

Lit in review: 1 and 2 of 3 on Biofuels

1) Gehlhar, Somwaru, Dixon, Rimmer, and Winston (2010), "Economywide Implications from US Bioenergy Expansion," AER Papers and Proceedings (100:May), 172-177.

2) Whistance, Thompson, and Meyer (2010), "Ethanol Policy Effects on US Natural Gas Prices and Quantities," AER Papers and Proceedings (100:May), 178-182.
1) A massive simulation using USAGE, a 535-industry model, expanded to include biofuels. They find that meeting the US goal of having 36 billion gallons of biofuels available by 2022 increases consumer welfare, but it would do so by more if we get there without tax credits than with. If we can only get there with tax credits, it costs us between $1 and $4 billion of GDP, depending on whether oil costs $115/barrel or $80. It is assumed that tax credits slow the rate of technological progress. Thus, getting there without tax credits increases GDP by $5-9 billion, with almost all of the difference between the projections going to increased private consumption. While their conclusion reads as if removing the tax credit is a good idea for these reasons, that is based on the assumption that removing the tax credit still lets us get to the goal.

2) Natural gas is used to produce the fertilizers used by corn farmers to produce ethanol and is the fuel used to power ethanol plants. Increasing production of ethanol, then, increases natural gas usage. But by how much? If biofuel tax credits, ethanol tariffs, AND use mandates were eliminated, they find that natural gas use for ethanol would be cut in half ... which amounts to a very small percent of total natural gas usage. There would be a small natural gas price decrease that would reduce consumer spending on natural gas by 0.9%. In future, they want to include the feedback effect from changes in natural gas prices on the profitability of farms and food prices and to include rival fuel products.

No comments:

Post a Comment