Mandates, buyouts and fuel-tax rebates: Some economic aspects of biofuel policies using the UK as an example

Abstract

Many governments mandate the blending of biofuels with fossil fuel supplies. The paper raises the possibility that some firms might choose not to respect such mandates, and cites the UK's experience, where a buyout of the obligation is possible. A simple economic framework is then used to explore some implications of mandate buyouts, including situations when buyouts and road-fuel-tax rebates are applied together. Finally, it discusses the design of buyout-mandate schemes that could release raw materials from biofuel production, following a future world food price shock.Biofuel Buyout Mandate