February 6, 2011

Path Dependence: Biofuels Policy Under Uncertainty About Greenhouse Gas Emissions

by Johanna Jussila Hammes

- We study the effect of uncertainty about the greenhouse gas emissions arising from the production of biofuels on trade policy, in the presence of lobby groups and two policy instruments, trade policy and biofuels mandates. We show how policy may be path dependent, i.e., that earlier tariff rates in part determine future tariff rates if the government is susceptible to lobbying and given that the domestic price of biofuels does not fall. The model can, e.g., shed light on why the EU does not lower the tariffs on Brazilian ethanol in the face of new information.

Hammes, J.J. (2011). "Path Dependence: Biofuels Policy Under Uncertainty About Greenhouse Gas Emissions." Swedish National Road & Transport Research Institute (VTI) Working Paper No. 2001.1, Jan 2011.