Scandinavian Working Papers in Economics

Working papers in Transport Economics,
CTS - Centre for Transport Studies Stockholm (KTH and VTI)

No 2014:19: A biofuel mandate and a low carbon fuel standard with ‘double counting’

Johanna Jussila Hammes ()
Additional contact information
Johanna Jussila Hammes: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden

Abstract: European Union’s (EU) energy legislation from 2009 is still being implemented in the Member States. We study analytically the Renewable Energy Directive and the Fuel Quality Directive’s provisions for the transport sector. The former Directive imposes a biofuel mandate and allows double counting of some biofuels. The latter Directive imposes a Low Carbon Fuel Standard (LCFS). We show that either the biofuel mandate or the LCFS is redundant. Double counting makes the biofuel mandate easier to fulfil but also depresses the price of biofuels. Production of the doubly counted biofuels increases nevertheless and production of the single-counted biofuels falls. Given the type of technical change studied, double counting spurs technical development of the doubly counted biofuels. The LCFS directs support towards those biofuels with lowest life-cycle carbon emissions. The redundant policy instrument, the biofuel mandate or the LCFS, only creates costs but no benefits and should be abolished. Double counting makes the biofuel mandate non-cost-efficient and should be reconsidered.

Keywords: Biofuel mandate; Low carbon fuel standard; Double counting; Technical change; European energy legislation

JEL-codes: D61; H21; H23

37 pages, October 24, 2014

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