Review of Agricultural and Applied Economics The Successor of the Acta Oeconomica et Informatica ISSN 1336-9261, XVI,Number 2, 2013: 3–15 RAAE Copyright 2013 FEM SUA @ APES REGULAR ARTICLE EMISSIONS FROM INDIRECT LAND USE CHANGE: DO THEY MATTER WITH FUEL MARKET LEAKAGES? Dušan Drabik*1,2, Harry de Gorter1 Address: Dušan Drabik, 1Cornell University, Charles H. Dyson School of Applied Economics and Management, B32 Warren Hall, Ithaca, NY 14853-7801 phone: +1 607- 255-8076 12LICOS – Centre for Institutions and Economic Performance, Waaistraat 6 - bus 3511, B-3000 Leuven - Belgium *Corresponding author:
[email protected] ABSTRACT Indirect land use change, an agricultural market leakage, has been a major controversy over the Environmental Protection Agency’s (EPA) requirement for corn-ethanol to reduce greenhouse gas (GHG) emissions by 20 percent relative to gasoline it is assumed to replace. This paper shows that corn-ethanol policies generate far greater carbon leakage in the fuel market itself. Hence, corn-ethanol does not meet EPA’s threshold, regardless of ethanol policy and whether one includes emissions from land use change. Keywords: biofuels, ethanol, carbon leakage, emissions savings, tax credit, mandate JEL: Q27, Q41, Q42, Q54 INTRODUCTION spatial, multi-market equilibrium model to examine the extensive and intensive margin changes in land use in the The issue of carbon leakage – where greenhouse gas United States induced by biofuel policies and the (GHG) emissions reductions by an environmental policy implications of these policies for GHG emissions. are partially or more than offset because of market effects Although they also provide estimates of leakage in the – is often raised as an issue that will undermine fuel market, they model the biofuel mandate differently.