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GTAP Resource #3929

"Renewable Fuel Standards: Efficiency vs. Rebound Effect"
by Taheripour, Farzad and Wally Tyner


Abstract
In recent years several papers have used partial equilibrium models and argued that the US ethanol policy generates a rebound effect which washes out the GHG benefits of using ethanol (e.g. [1], [2], [3], and [4]). The theory of rebound effect was first discussed by Jevons in 1868 when using a new steam engine led to a drop in coal price and an increase in coal consumption in UK [5]. This theory argues that an increase in efficiency of an energy system could increase demand for energy. For example, fuel efficiency could increase miles driven by households [6]. This paper develops partial and general equilibrium analytical and numerical methods to examine conditions under which the US ethanol policies generate a rebound effect. It first develops partial and general equilibrium analytical models and indicates that the US Renewable Fuel Standard (RFS) does not generate any rebound effect per se for two main reasons: (1) Cost of producing ethanol in energy equivalent terms is higher than the cost of gasoline and (2) RFS reduces overall economic efficiency. The partial and general equilibrium analytical models developed in this paper indicate that the ethanol tax credit part of the US ethanol policy (which has already expired) may cause some rebound effect and that the magnitude of the rebound effect will depend on the method of financing the tax credit and many other economic factors and parameters. It then develops a Computational General Equilibrium (CGE) model and assesses the magnitude of the rebound and inefficiency effects for the US ethanol policy.

The analytical general equilibrium model extends the analytical framework developed in [7] to examine the US ethanol policies. Then the GTAP-BIO-AEZ model used in [8] is extended and modified to measure the magnitude of the rebound effect due to the US ethanol policy which was in place in 2011 (a combination of tax credit and RFS) including financing the ethanol tax credit. The preliminary numerical results sh...


Resource Details (Export Citation) GTAP Keywords
Category: 2012 Conference Paper
Status: Published
By/In: Presented at the 15th Annual Conference on Global Economic Analysis, Geneva, Switzerland
Date: 2012
Version:
Created: Taheripour, F. (4/30/2012)
Updated: Taheripour, F. (6/25/2012)
Visits: 1,516
No keywords have been specified.


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