Social and Behavioral Sciences Commons^™

Comparison Of Fixed Versus Variable Biofuels Incentives, Wallace E. Tyner, Farzad Taheripour, David Perkis

PPRI Digital Library

We evaluated several variants of a variable biofuel subsidy and compared them with the fixed subsidy and Renewable Fuel Standard. We used 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, with a variable subsidy, the …