Interfuel substitution effects of biofuel use on carbon dioxide emissions: evidence from the transportation sector

ABSTRACT

This study examines the interfuel substitution effects of biofuel use on carbon dioxide emissions in the U.S. transportation sector. First, the dynamic linear logit model is used to examine substitution possibilities between biofuels and non-biofuels. The results reveal that petroleum demand is the most inelastic with respect to changes in petroleum prices since the transportation sector depends heavily on the use of petroleum. In addition, ethanol serves as a substitute for petroleum, showing that the use of ethanol can reduce the dependence on petroleum when petroleum prices increase. The results also indicate that ethanol is a complement for natural gas, while natural gas is a substitute for petroleum. Second, the coefficients for carbon dioxide emissions are used to compute the potential amount of carbon dioxide associated with interfuel substitution. The results represent that price-induced interfuel substitution is a critical factor to predict biofuel-related carbon dioxide emissions.

KEYWORDS:

• Ethanol
• biodiesel
• petroleum
• interfuel substitution
• carbon dioxide emission
• transportation

JEL CLASSIFICATION:

• Q41
• Q42
• Q53

Acknowledgements

This work was supported by the Korea University Future Research Grant (K1822461), the Korea Institute of Energy Technology Evaluation and Planning(KETEP), and the Ministry of Trade, Industry and Energy(MOTIE) of the Republic of Korea (No. 20181210301430).

Disclosure statement

No potential conflict of interest was reported by the author.