On biofuels and trade: Tariffs, standards or import subsidies?
Håkan Eggert and Mads Greaker
The transport sector is a major contributor to green house gas (GHG) emissions and its share is increasing. Biofuels may provide an option to replace fossil fuels and generate an increasing worldwide interest. Rich countries like the US and the European Union have set targets like portfolio standards for the use of biofuels and provide subsidies for domestic producers, while applying tariffs for some of the foreign producers. Mid income and poor countries do not have binding restrictions on carbonemissions in the Kyoto treaty, but may have great potential for producing biofuels both for domestic and foreign use. Real world trade conditions for biofuels are currently far from a first best solution. In this paper we study second best trade policies for biofuels. In particular we find, that standards should be accompanied by tariffs. And moreover, that with a portfolio standard, the government should in some cases provide an import subsidy instead of a tariff.
Files available for download
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Biotrade6.pdf
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