Abstract

The aim of this study is to develop a theoretical model by which to demonstrate how taxes and subsidies work as external factors to substitute fossil fuel by a forest-based biofuel. For biofuels, this study predominantly considers solid-form biomass that generates electricity; for fossil fuels, it considers coal. The model results explicated with three states by using various numeric values taken from the literature. Three states are as follows: a situation without a tax and subsidy, a situation with a biofuel subsidy, and a situation with a biofuel subsidy and a fossil fuel tax. The results of the first state exemplify current fuel market situation; those of the second indicate that the aggregate demand for biofuel has shifted upwards by around 15 % and that substitution has increased by around 18 % due to biofuel subsidies being offered. Under the third state, aggregate biofuel demand has shifted upwards by around 19 %, reduced the demand for fossil fuels by around 13 %, and increased substitution by around 31 %. This state relates to a greater sense of social welfare than other two states. It is conceivable that the joint application of taxes and subsidies will succour biofuel to supplant fossil fuel in the near future.

Keywords

Forest-based biofuel; Substitution model; Fossil fuel; Tax; Subsidy

Published in

Mitigation and Adaptation Strategies for Global Change
2016, Volume: 21, number: 3, pages: 445-460

SLU Authors

• Mola-Yudego, Blas

  • Department of Crop Production Ecology, Swedish University of Agricultural Sciences
    
  • University of Eastern Finland

Sustainable Development Goals

SDG7 Ensure access to affordable, reliable, sustainable and modern energy for all
SDG12 Ensure sustainable consumption and production patterns


UKÄ Subject classification

Renewable Bioenergy Research
Environmental Sciences
Climate Research


Publication identifier

DOI: https://doi.org/10.1007/s11027-014-9608-x

Permanent link to this page (URI)

https://res.slu.se/id/publ/66093