The social cost and benefits of US biofuel policies

Abstract

This paper provides important insights into the social costs and benefits of key policy instruments. One key insight is how a change in the price of ethanol affects the corn price Because the corn market is now directly linked to the ethanol price, which is directly linked to gasoline prices, any change in oil prices that affects gasoline prices is now directly transmitted to the price of corn for a given level of the tax credit. On the other hand, once a consumption mandate is in place, any changes in oil prices will not directly affect the corn price (only indirectly affecting costs of production). Hence, a mandate will not transmit instability from the oil market to the corn market unlike a tax credit.