US biofuels subsidies and CO₂ emissions: An empirical test for a weak and a strong green paradox

Using energy data over the period 1981–2011 we find that US biofuels subsidies and production have provided a perverse incentive for US fossil fuel producers to increase their rate of extraction that has generated a weak green paradox. Further, in the short-run if the reduction in the CO₂ emissions from a one-to-one substitution between biofuels and fossil fuels is less than 26 percent, or less than 57 percent if long run effect is taken into account, then US biofuels production is likely to have resulted in a strong green paradox. These results indicate that subsidies for first generation biofuels, which yield a low level of per unit CO₂ emission reduction compared to fossil fuels, might have contributed to additional net CO₂ emissions over the study period. - Highlights: • US biofuels subsidies increased fossil fuel extraction from 1981 to 2011. • US biofuels subsidies likely increased carbon emissions from 1981 to 2011. • Governments must consider effects of biofuel subsidies on fossil fuel extraction