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Abstract
This paper provides an overview of the economics of biofuels. It starts by
describing the remarkable growth of the biofuel industry over the last decade, with
emphasis on developments in the United States, Brazil and the European Union, and
it identifies the driving role played by some critical policies. After a brief discussion
of the motivations that are commonly argued in favor of biofuels and biofuel policies,
the paper presents an assessment of the impacts of biofuels from the economics
perspective. In particular, the paper explains the basic analytics of biofuel mandates,
reviews several existing studies that have estimated the economic impacts of biofuels,
presents some insights from a specific model, and outlines an appraisal of biofuel policies
and the environmental impacts of biofuels. The paper concludes with an examination
of several open issues and the future prospects of biofuels.