This chapter reviews a wide range of publications that studied the economics of biofuels and related topics, including the background and goals of biofuel policies, techno-economic analysis of biofuels, biofuels-induced land use changes and their corresponding greenhouse gas emissions, the impacts of biofuels on commodity and energy prices, and the welfare implications of biofuels. We concluded that: (1) biofuels are government-created industries across the world; (2) the conventional biofuels still rely on government support; (3) second generation biofuels are in the development phase and not ready to be produced massively in the market place; (4) producing conventional biofuels generates land use emissions and increases food prices, but the observed impacts were smaller than the initial estimates; and (5) while biofuel production, induced by government mandates, may generate trade gains for the U.S. economy, the inefficiency costs of these mandates could lead to overall welfare losses. Finally, while the literature covers very important topics such as food versus fuel, land use impacts, and welfare impacts, we still do not have a good comparison of the value of the perceived benefits of biofuel interventions (including the benefits of emissions savings) and the estimated costs.

JEL classifications: I31, Q11, Q16, Q17, Q24, Q28