The efficacy of alternative biofuel policies in achieving energy, environmental
and agricultural policy goals is assessed using economic cost-benefit analysis.
Government mandates are superior to consumption subsidies, especially with suboptimal
fuel taxes and the higher costs involved with raising tax revenues. But subsidies
with mandates cause adverse interaction effects; oil consumption is subsidized instead.
This unique result also applies to renewable electricity that faces similar policy combinations.
Ethanol policy can have a significant impact on corn prices; if not, inefficiency
costs rise sharply. Ethanol policy can increase the inefficiency of farm subsidies
and vice-versa. Policies that discriminate against trade, such as production subsidies
and tariffs, can more than offset any benefits of a mandate. Sustainability standards
are ineffective and illegal according to the WTO, and so should be re-designed.