“I was shocked because I haven’t heard of anyone winning this award twice, let alone consecutively,” said Galinato, who is a former editor of the journal. “I’m extremely grateful and proud that my peers feel this paper is worthy of being honored.”
This year’s winning paper looks at how to best use revenue neutral tax money to incentivize the purchase of cellulose-based biofuels to include in gasoline, while trying to move away from the relatively more polluting crude oil. Revenue neutral taxes means a new tax is added, but it is used to reduce another revenue stream.
In this case, a tax is added on a polluting input like crude oil, while the overall sales tax rate is reduced, so that taxes collected from crude oil offset the losses in sales tax revenue.
The higher price in crude oil would reduce demand for this input and incentivize the purchase of other types of inputs that are relatively cheaper (and less polluting), like bio-ethanol. One type of bio-ethanol is cellulose-based biofuels, which come from products like switchgrass or tree residues. They don’t include biofuels produced using corn.
He and co-author Tristan Skolrud, who earned a doctorate at WSU in economics and is now a tenure track assistant professor at the University of Saskatchewan, created a model that looked at the impacts on cellulose-based biofuels sales when taxes on carbon-based non-sustainable fuels are increased and sales taxes for consumers are reduced.
“Our model found that this only increased biofuel sales a very small amount,” Galinato said. “The hope for these policy plans is to reduce crude oil use, which becomes more expensive, and to increase demand for cellulosic ethanol.”
Money saved from reduced sales tax would help compensate consumers for any increase in overall gasoline prices that they might face.
“We did not see any substantial increase in demand for cellulosic ethanol,” Galinato said. “However, overall welfare increased for the state.”
The results of the paper surprised the authors, who expected a larger benefit for the biofuel industry.
“If you reduce sales tax, you help a lot of people, which explains the overall increase in welfare,” Galinato said. “But it doesn’t directly affect cellulose-based biofuel producers much at all. Revenue neutral taxes are helpful, but it depends on who you want to help.”
The authors also wrote a companion paper that used their models to look at using revenue neutral taxes to directly subsidize cellulosic biofuel producers using the money raised from the crude oil tax. Not surprisingly, that paper found that method had major benefits to the cellulosic biofuel industry, but significantly lower impact on overall welfare.
Galinato hopes the papers will help policy makers as they work to help boost the biofuel industry.
“Since 2007, policy makers have wanted the biofuels industry to grow and reduce reliance on non-renewable energy sources,” Galinato said. “We’re still working on that. With a revenue neutral tax policy, we identified one instrument that can affect overall welfare for society or be more focused on helping a particular industry in the state.”