Umeå Economic Studies,
Umeå University, Department of Economics

Abstract: Biofuels are increasingly being regarded as an energy source with potential to address problems in several areas, such as those found in the areas of climate change, environmental degradation, energy supply and energy security. We take a look at biofuels through the lens of modern resource economics and begin our survey by asking the question: Why biofuels? We delimit ourselves to biofuels for transportation (e.g. ethanol and biodiesel). We then review some of the literature in the field and put forward a framework for analysis drawn mainly from the green accounting literature. The literature review indicates that the effects of policies promoting conversion from fossil fuels to biofuels are not necessarily welfare improving. Our theoretical framework provided sheds some light on why this might be the case. We propose policies that not only penalize emissions of CO2 from all sources, but also stimulate biomass growth. We end by identifying issues for further research.

Keywords: Biofuels; ethanol; green accounting; energy demand

JEL-codes: Q42; Q54

30 pages, March 31, 2008

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Published as

Tommy Lundgren, Per-Olov Marklund, Runar Brännlund and Bengt Kriström, (2008), 'The Economics of Biofuels', International Review of Environmental and Resource Economics, vol 2, no 3, pages 237-280

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