Carbon abatement in the fuel market with biofuels: Implications for second best policies
A carbon tax on fuel would penalize carbon intensive fuels like gasoline and shift fuel consumption to less carbon intensive alternatives like biofuels. Since biofuel production competes for land with agricultural production, a carbon tax could increase land rents and raise food prices. This paper a...
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| Veröffentlicht in: | Journal of environmental economics and management 2014-03, Vol.67 (2), p.89-103 |
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| container_title | Journal of environmental economics and management |
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| creator | Crago, Christine Lasco Khanna, Madhu |
| description | A carbon tax on fuel would penalize carbon intensive fuels like gasoline and shift fuel consumption to less carbon intensive alternatives like biofuels. Since biofuel production competes for land with agricultural production, a carbon tax could increase land rents and raise food prices. This paper analyzes the welfare effect of a carbon tax on fuel consisting of gasoline and biofuel in the presence of a labor tax, with and without a biofuel subsidy. The market impacts of a carbon tax are also compared with that of a subsidy. Findings show that if a carbon tax increases biofuel demand, the tax interaction effect due to higher fuel prices is exacerbated by higher land rent and food prices and greater erosion of the carbon tax base. Thus, the second best optimal carbon tax for fuel is lower with biofuel in the fuel mix, especially if biofuel is subsidized. |
| doi_str_mv | 10.1016/j.jeem.2013.11.001 |
| format | Article |
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| ispartof | Journal of environmental economics and management, 2014-03, Vol.67 (2), p.89-103 |
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| language | eng |
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| source | Elsevier ScienceDirect Journals Complete |
| subjects | Agricultural production Biodiesel fuels Biofuel Biofuels Carbon Carbon tax Emissions control Environmental tax Food prices Gasoline prices Optimal fuel tax Second best policy Studies Subsidies Tax base Tax increases |
| title | Carbon abatement in the fuel market with biofuels: Implications for second best policies |
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