Abstract
We develop an analytical and numerical multi-market model that integrates land, fuel, and food markets, and link it with an emissions model to quantify the importance of carbon leakage relative to the intended emissions savings resulting from the Renewable Fuel Standard (RFS) for conventional biofuels. The expansion of biofuels mandated by the RFS can increase or decrease GHG emissions depending on the policy regime being evaluated. For example, replacing the Volumetric Ethanol Excise Tax Credit (VEETC) with the RFS, as occurred at the end of 2011 when the VEETC was allowed to expire, would reduce emissions by 2.0 tgCO2e in 2015 for an expansion of ethanol of 11.4 billion liters. A policy regime consisting of the RFS alone would increase emissions by at least 4.5 tgCO2e for the same expansion of ethanol. Our findings highlight an important tension between land and fuel market leakage. Policy regimes that result in less land market leakage tend to lead to more domestic fuel market leakage per liter of ethanol added.
Highlights
The costs of comprehensive U.S federal climate legislation, such as a cap-andtrade program, are shown to be rather small (CBO 2009), a variety of political obstacles continue to block its passage
Our central finding is that the expansion of biofuels mandated by the Renewable Fuel Standard (RFS) can increase or decrease greenhouse gas (GHG) emissions depending on the policy regime being evaluated
This implicitly assumes that, in the absence of the RFS, policymakers would have otherwise continued to support biofuels through the Volumetric Ethanol Excise Tax Credit (VEETC) which is fully consistent with the U.S.’s long history of biofuel support through subsidization. This baseline is consistent with our characterization of intended emissions savings, as the reduction in emissions anticipated by a representative policymaker at the time that the RFS was enacted, since the VEETC was in place at this time
Summary
The costs of comprehensive U.S federal climate legislation, such as a cap-andtrade program, are shown to be rather small (CBO 2009), a variety of political obstacles continue to block its passage. A major concern associated with sectoral and regional approaches to climate policy relates to their effectiveness in reducing GHG emissions (Bushnell, Peterman, and Wolfram 2008; Goulder and Stavins 2011). Such approaches are incomplete, in that only a subset of polluting sectors or regions are regulated. In that only a subset of polluting sectors or regions are regulated As a consequence they are likely to. Examples include the Renewable Fuel Standard which mandates the use of liquid biofuels by the fuel sector, the Corporate Average Fuel Economy (CAFE) standards which mandate minimum fuel economy standards for passenger vehicles and light trucks, and Renewable Portfolio Standards (RPS), which establish state-level targets for renewable energy production by the electricity sector
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