Conventional wisdom suggests that subsidising biofuel production will reduce greenhouse gas (GHG) emissions. This paper shows that in many cases, and for a wide range of parameter values, this is not true. Biofuel subsidies can generate supply-side response by fossil fuel producers that...

We propose a simple model of a partially integrated industry which explicitly takes into account persistent production cost differences across upstream firms, such as one might observe in natural resource industries. The model allows us to highlight the respective roles of strategic...