『Abstract
We evaluated several variants of a variable biofuel subsidy and
compared them with the fixed subsidy and Renewable Fuel Standard
using two different modeling approaches. First we used a partial
equilibrium model encompassing crude oil, gasoline, ethanol, corn,
and ethanol by-products. Second, we used a stochastic simulation
model of a prototypical ethanol plant. From the partial equilibrium
analysis, it appears the variable subsidy provides a safety net
for ethanol producers when oil prices are low; yet, it does not
put undue pressure on corn prices when oil prices are high. At
high oil prices, the level of ethanol production is driven by
market forces. From the plant level stochastic analysis, essentially
the same conclusions are reached. As with the fixed subsidy, the
variable subsidy can increase the net present value (NPV) sufficiently
to encourage investment, but with lower risk for the producer,
lower probability of a loss from the investment, and often lower
expected cost to government. Finally, in the US, the ethanol industry
is up against a blending limit called the blend wall. If the blending
wall remains in place and no way around it is found, it does not
matter much what other policy options are used.
Keywords: Ethanol policy; Biofuel incentives』
1. Introduction
2. Basic economics of the current market and policy options
2.1. Blend wall
3. Policy analysis
3.1. Evaluation of policy options with a partial equilibrium
model
3.2. Ethanol plant simulation model based analysis
3.3. Implementation issues
4. Summary and conclusions
Acknowledgments
Appendix A
A.1. Brief model description
References