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Taking an option on the future: Subsidizing biofuels for energy security or reducing global warming

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  • Viju, Crina
  • Kerr, William A.

Abstract

This paper examines the biofuels industry from a policy and international trade perspective. Across the globe there are two main public policy objectives driving the development of biofuels industries—improving energy security and reducing global warming. The US and Canadian governments have respectively fostered biofuels industries for these reasons. As biofuels industries will not be financially viable without government support in the foreseeable future, government policies can be interpreted as taking options on the future. A theoretical model is developed using option value theory to determine whether the same governmental policy (subsidization) can lead to different levels of optimal subsidies in each country, where the subsidy policy is driven by two distinct motivating factors. If the reason subsidy levels differ is structural, the likelihood of a trade dispute arising increases.

Suggested Citation

  • Viju, Crina & Kerr, William A., 2013. "Taking an option on the future: Subsidizing biofuels for energy security or reducing global warming," Energy Policy, Elsevier, vol. 56(C), pages 543-548.
    • Handle: RePEc:eee:enepol:v:56:y:2013:i:c:p:543-548
    DOI: 10.1016/j.enpol.2013.01.020
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    Cited by:

    1. Månsson, André & Sanches-Pereira, Alessandro & Hermann, Sebastian, 2014. "Biofuels for road transport: Analysing evolving supply chains in Sweden from an energy security perspective," Applied Energy, Elsevier, vol. 123(C), pages 349-357.
    2. Edwards, Joel & Othman, Maazuza & Burn, Stewart, 2015. "A review of policy drivers and barriers for the use of anaerobic digestion in Europe, the United States and Australia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 815-828.
    3. Kerr, William A., 2014. "Food Security and Trade: Some Supply Conundrums for 2050," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 15(2), pages 1-18.

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