16. Food and Biofuel in a Global Environment

Needless to say, if the “consensus” on anthropogenic climate change is wrong, then oil is not very environmentally damaging; therefore, much of the energy-related environmental concerns are mitigated.

A conservative estimate attributes 22% of all US energy consumption to households and 32% of all US (and 8% of all world) carbon emissions to individuals. The amount of energy consumed by autos, motorcycles, and total energy use for transportation data are taken from Table 2.7, “Highway Transportation Energy Consumption by Mode” (Transportation Energy Data Book Edition 26-2007, Oak Ridge National Laboratory). The numbers are used to compute the fraction of total transportation energy consumed by residential users (approximately 55%). Total residential energy consumption is determined by summing residential sector consumption and 55% of transportation sector consumption according to Table 2.​1 a, “Energy Consumption by Sector: 1949–2006” (Annual Energy Review 2006, Energy Information Administration). Data were taken for the year 2001. Calculation of the fraction of residential transportation energy consumption excluded light vehicles, which include light trucks, SUVs, and minivans. Therefore, this estimate is believed to provide a lower bound on the fraction of total energy consumed by residences.

The environment offers local benefits in the form of open space and recreational opportunities. It also offers global benefits in the form of existence and option values associated with biodiversity.

The economic structure builds on work (originated by Samuelson 1953; and extended by Melvin 1968; Drabicki and Takayama 1979; Dixit and Norman 1980; Deardorff 1980; Dixit and Woodland 1982; and many others) that attempts to apply the law of comparative advantage to more than two goods and more than two factors. It generalizes the results of two-by-two theory to many-goods, many-factors models by making the same general assumptions as in the standard two-by-two theory and looking for weaker results (see, for instance, Jones and Scheinkman 1977; Dixit and Norman 1980; and Deardorff 1982). It investigates the accuracy of the classical trade theorems: the Rybczynski theorem, the Stopler–Samuelson theorem, the Heckscher–Ohlin theorem, and the factor price equalization theorem.

Demand for Toyota Prius hybrids increased significantly during the latest surge in oil prices, partly at the expense of SUV and light trucks, which led Toyota to convert light truck production lines in the United States to produce the Toyota Prius hybrids (http://​blog.​wired.​com/​cars/​2008/​06/​rising-gas-pric.​html).

Other policies, not addressed in this chapter, include policy-inducing adoptions of energy-saving technologies that may affect the degree of complementarity between capital and energy. We elected to abstract from these policies since in this chapter goods are homogeneous, not heterogeneous.