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Under what conditions does a carbon tax on fossil fuels stimulate biofuels ?, Volume 1
 
Author:Timilsina, Govinda R.; Csordas, Stefan; Mevel, Simon; Collection Title:Policy Research working paper ; no. WPS 5678Paper is funded by the Knowledge for Change Program (KCP)
Country:World; Date Stored:2011/06/06
Document Date:2011/06/01Document Type:Policy Research Working Paper
SubTopics:Environment and Energy Efficiency; Transport Economics Policy & Planning; Climate Change Mitigation and Green House Gases; Energy and Environment; Taxation & SubsidiesLanguage:English
Major Sector:Energy and miningRel. Proj ID:1W-Economic And Environmental Impacts Of Biofuels -- -- P113535;
Region:The World RegionReport Number:WPS5678
Sub Sectors:Energy efficiency in Heat and PowerTF No/Name:TF092095-KCP ECONOMIC AND ENVIRONMENTAL IMPACTS OF BIOFUELS
Volume No:1  

Summary: A carbon tax is an efficient economic instrument to reduce emissions of carbon dioxide released from fossil fuel burning. Its impacts on production of renewable energy depend on how it is designed -- particularly in the context of the penetration of biofuels into the energy supply mix for road transportation. Using a multi-sector, multi-country computable general equilibrium model, this study shows first that a carbon tax with the entire tax revenue recycled to households through a lump-sum transfer does not stimulate biofuel production significantly, even at relatively high tax rates. This reflects the high cost of carbon dioxide abatement through biofuels substitution, relative to other energy substitution alternatives; in addition, the carbon tax will have negative economy-wide consequences that reduce total demand for all fuels. A combined carbon tax and biofuel subsidy policy, where part of the carbon tax revenue is used to finance a biofuel subsidy, would significantly stimulate market penetration of biofuels. Although the carbon tax and biofuel subsidy policy would cause higher loss in global economic output compared with the carbon tax with lump sum revenue redistribution, the incremental output loss is relatively small.

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