US Ethanol Trade Policy: Pollution Reduction or Domestic Protection

Stephen Devadoss, Jude Bayham

Research output: Contribution to journalArticle

Abstract

To mitigate dependence on fossil fuel and reduce pollution, the US government has undertaken several policies-an import tariff, tax credit, and mandate-to augment domestic ethanol production and increase ethanol in the fuel supply. This study uses a general equilibrium model to analyze the effects of the US ethanol import tariff on welfare by internalizing the externality and incorporating US fuel and ethanol policies and to determine the optimal tariff. The results show that because of the environmental benefits of imported ethanol, the adverse effects of domestic ethanol on the environment, the need for the imported ethanol to boost the blended gasoline production, and the economy-wide interactions of various markets, the optimal trade policy may call for subsidizing rather than taxing ethanol imports.

Original languageEnglish
Pages (from-to)568-584
Number of pages17
JournalReview of International Economics
Volume21
Issue number3
DOIs
StatePublished - Aug 1 2013

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