Killing two birds with one stone: US and EU biofuel programmes

The United States and the European Union have been implementing sizeable biofuel support programmes since the beginning of the decade. Supporting the biofuel industry raises the price of the agricultural feedstock, and hence increases the farmer revenue and reduces the need for direct income support...

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Bibliographic Details
Published in:European review of agricultural economics 2010-09, Vol.37 (3), p.369-394
Main Authors: Bourgeon, Jean-Marc, Tréguer, David
Format: Article
Language:English
Subjects:
Agricultural economics
Biodiesel fuels
Biofuels
dual energy market
Economic theory
Economics and Finance
environmental enforcement
Environmental policy
Farmers
H23
Humanities and Social Sciences
income support
Q18
Q58
Studies
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Summary:The United States and the European Union have been implementing sizeable biofuel support programmes since the beginning of the decade. Supporting the biofuel industry raises the price of the agricultural feedstock, and hence increases the farmer revenue and reduces the need for direct income support. Thus, for a given objective of agricultural income, the regulator is able to operate a partial substitution between agricultural decoupled payments and the support to the biofuel industry (subsidies or mandatory blending). We detail these effects and derive the biofuel and the environmental policies that maximise social welfare. We also show that for high levels of biofuel production, cross-compliance provisions are a more expensive way of enforcing the environmental policy than fining farmers.
ISSN:0165-1587
1464-3618
DOI:10.1093/erae/jbq025