Institute of the Environment and Sustainability

We develop a two-region partial equilibrium model of the global market for liquid fuels to analyze different fuel policies based on multiple criteria, including greenhouse gas (GHG) emissions, expenditure of fuel imports, and the impact on fuel consumers and producers. We find that while ethanol policies may lower gasoline price in the home region, they increase the price of other oil products. A carbon tax increases prices of all fuels. For current sources of ethanol, reduction in GHG emissions due to the substitution of gasoline with ethanol in domestic markets may be dominated by the increase the global emissions because of price effects. Policy makers' preference for ethanol mandates reveals a desire to lower the cost of gasoline and to support the domestic biofuel sector while the selection of an emission-standard reveals a desire to reduce GHG emissions and minimize the impact on fuel consumers.