Effectiveness of a Pacific Northwest Revenue-Neutral Carbon Tax in the Context of the Federal Biofuel Policy

Effectiveness of a Pacific Northwest Revenue-Neutral Carbon Tax in the Context of the Federal Biofuel Policy

Wednesday, March 2, 2016

View the recording at: https://youtu.be/lPPMbolduHk

Presented by Dr. Gregmar Galinato, Associate Professor, School of Economic Sciences, Washington State University

This webinar explores how the federal biofuel policy on cellulosic feedstock along with a tax structure that seeks to control carbon dioxide emissions will help achieve sustainable biofuel production in the Pacific Northwest. In particular, the study models and estimates:

  1. The impacts of federal biofuel policy on the forest, energy, and agricultural sectors in the Pacific Northwest
  2. The economic welfare effects of a state-level revenue-neutral carbon tax given the federal biofuel policy
  3. The effects of an integrated tax-subsidy policy within the local energy sector given the federal biofuel policy

By achieving these objectives, our research provides guidance on how state-level policies can complement federal policies in providing guidance for the development of cost-effective renewable fuel policies and examine their impact on biomass-based biofuel industry development in the Pacific Northwest.

We find that the federal cellulosic waiver credit provides countervailing incentives which hinder the production of cellulosic ethanol resulting in little to no growth in feedstock production and cellulosic ethanol production. A state level revenue neutral tax scheme can reduce pollution, reduce distortion in existing markets, and incentivize the production of cellulosic ethanol. If revenues from a carbon tax are used to subsidize the use of cellulosic ethanol production, the cellulosic ethanol industry has significantly larger growth than the case where carbon revenues are recycled to reduce income tax or sales tax. However, net welfare change is larger when carbon revenues are recycled to reduce income or sales tax than used to subsidize production in the cellulosic industry.