Biofuel Mandating and the Green Paradox

Samuel Okullo, F. Reynes, M. Hofkes

Research output: Working paperDiscussion paperOther research output

Abstract

The theory on the green paradox has focused primarily on the consumption of a clean substitute produced using a static technology. In reality, we observe the gradual accumulation of the clean substitute’s capacity, suggesting that supply decisions for the clean substitute and finite carbon resource should both be treated as dynamic. This paper shows that when climate policy is preannounced, and with simultaneous consumption of a finite carbon resource and a clean substitute, myopia in the supply of the latter leads to the green paradox. When clean substitute producers can accumulate capacity and are forward looking, the green paradox may or may not arise, however. In this setting, its occurrence depends on both the size of the discount rate and the remaining stock of carbon resource. These and other drivers of the green paradox are investigated in a
multi-producer game-theoretic model calibrated to real-world global oil market data. The timing of mandating policy is shown to be the single most important variable for mitigating the green paradox. Moreover, for EU-2020 and US-2022 style biofuel mandating targets, a rather robust 0.3% decline in production is observed during the premandate phase, suggesting that concerns over the green paradox may be seriously overstated.
LanguageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages43
Volume2016-024
Publication statusPublished - 2016

Publication series

NameCentER Discussion Paper
Volume2016-024

Fingerprint

biofuel
carbon
resource
discount rate
environmental policy
market
oil
consumption

Keywords

  • green paradox
  • climate change
  • peak oil
  • biofuel mandates
  • unconventional crude oil

Cite this

Okullo, S., Reynes, F., & Hofkes, M. (2016). Biofuel Mandating and the Green Paradox. (CentER Discussion Paper; Vol. 2016-024). Tilburg: CentER, Center for Economic Research.
Okullo, Samuel ; Reynes, F. ; Hofkes, M. / Biofuel Mandating and the Green Paradox. Tilburg : CentER, Center for Economic Research, 2016. (CentER Discussion Paper).
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Okullo, S, Reynes, F & Hofkes, M 2016 'Biofuel Mandating and the Green Paradox' CentER Discussion Paper, vol. 2016-024, CentER, Center for Economic Research, Tilburg.

Biofuel Mandating and the Green Paradox. / Okullo, Samuel; Reynes, F.; Hofkes, M.

Tilburg : CentER, Center for Economic Research, 2016. (CentER Discussion Paper; Vol. 2016-024).

Research output: Working paperDiscussion paperOther research output

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Okullo S, Reynes F, Hofkes M. Biofuel Mandating and the Green Paradox. Tilburg: CentER, Center for Economic Research. 2016. (CentER Discussion Paper).