Wednesday, January 25, 2012
12:00 PM - 1:00 PM
La Kretz Hall, Suite 300, Large conference room

Abstract

We perform multi criteria comparison of four policy instruments, a volumetric renewable fuel mandate (VM), fuel emission intensity standard (ES), fuel greenhouse gas (GHG) tax and a combination of VM and fuel GHG tax, with the criteria being impact on domestic surplus, domestic and global greenhouse gas emissions, and fuel import outlay using a two-region partial equilibrium model of the world oil market. The GHG tax is superior to the other regulations and a combination of VM and GHG tax performs superior to a pure VM or ES for each criterion. Among the three biofuel based regulations, for any level of biofuel consumption, the combination of a given volumetric mandate and a GHG tax, leads to higher domestic surplus, lower domestic and global GHG emissions, and smaller outlay on fuel imports compared to a pure VM or ES. For the biofuel based regulations, the marginal cost of abatement, based on domestic emissions, exceeds $500 per ton of CO2. This increases to thousands of dollars per ton when based on global emissions. Implementing a fuel GHG tax and eliminating subsidy and tariff significantly increases the benefits of biofuel regulations. For pure biofuel regulations, depending on the emission intensity of land use change, emissions may increase relative to the baseline.