The French Biodiesel Production: An Assessment of the Impacts and Interaction Effects of Policy Instruments

This paper proposes to explore the welfare impacts of the French biodiesel policies on the consumer fuel prices. We use a theoretical model to determine under which conditions a binding mandate may lead to an increase in fuel prices. We distinguish between two cases, i.e. when the mandate is used alone and when it is implemented alongside a tax credit on biodiesel. The mandate is defined as a minimum percent requirement. Then we use historical data to make an empirical assessment of the effects of these policies. We derive from the observed quantities and prices of diesel and biodiesel in France over the past the value of the price elasticities of the diesel supply, the biodiesel supply and the fuel demand. This allows us to determine the sign of the fuel price change and thus the impact on consumers’ welfare. Results show that the marginal effect of the mandate alone has been until now a decline of the fuel prices. But as the incorporation rates still grow, the situation is likely to reverse in the coming years. Hence the consumers’ welfare would be negatively affected. But this policy may be efficient to reduce GHG emissions as the rise of fuel prices could lower fuel consumption and thus fossil fuel use. A tax credit allows a mitigation of the increase in the biodiesel price. However, this absorbing effect may disappear as the rate of the tax credit is decreasing.