International Trade, Policy and Biofuels in California Energy and Agriculture: Implications of Biofuels Berkeley, California October 5, 2007. Hyunok Lee and Daniel A. Sumner University of California Agricultural Issues Center and Department of Agricultural and Resource Economics, UC Davis.
International Trade, Policy and Biofuels in California Energy and Agriculture: Implications of BiofuelsBerkeley, CaliforniaOctober 5, 2007
Hyunok Lee and Daniel A. Sumner
University of California Agricultural Issues Center and Department of Agricultural and Resource Economics, UC Davis
530-752-2320 (Laurie Treacher)
(Elobeid and Tokgoz, October 2006)
1) Remove duties on ethanol imports
2) Remove duties US federal tax credit
Model: US, CBI and Brazil, multi-market (transportation fuel, ethanol, inputs and co-product markets)
US transport fuel D and S => Derived Demand for ethanol
US supply of ethanol <= profit maximization framework (endogenous prices of co-products, corn)
Brazil demand for ethanol; Supply of ethanol <= profit maximization (sugar cane)
Calibrated on 2005 market data and policies, and compares simulation results with the baseline, 2006-2015.
Shift out supply of ethanol available in US market and draw this supply off the world market
Shift out supply in US and shift back demand for ethanol in the US market
If ethanol demand is driven by the mandate then demand is inelastic. Increasing supply lowers price but does not affect use. Imports simply replace domestic consumption.
If ethanol is really a fuels extender i.e. ethanol can compete with gas at current prices, imports do not drive prices down because ethanol remains a small share of fuel market.
Price hinge on what we think drives the demand for ethanol in the US market
Demand in three segments
Quantity of ethanol
Demand Considerations and Price Response to Expanded Supply(think also of shifting demand to the right with new mandates or to the left with lower or removed mandates)
“Canada and Brazil also have made claims that the U.S. is over its $19.1 billion "aggregate measure of support." Besides questioning direct payments, Brazil is questioning the 51-cent blenders tax credit for ethanol and the $1 per gallon tax credit for bio-diesel fuel. Brazil argues certain tax breaks for farmers should be added into the amber-box figures as well.”
“WTO-Tinged Farm Bill Unlikely” Chris Clayton, DTN Fri Sep 28, 2007 09:33 AM CDT