The Implications of Alternative U.S. Domestic and Trade Policies for Biofuels

Abstract

The U.S. Renewable Fuel Standard program (RFS), which involves mandates for various biofuels, is complex and has been often misinterpre ted or oversimplified in previous studies. In this paper we analyze the implications of the RF S for the U.S. domestic and international ethanol markets. We demonstrate the vital role of t he advanced biofuel mandate within the RFS. Impacts of changes in tariffs on imported fuel ethanol and subsidies for U.S. domestic ethanol production are examined. One of our important findings is that the RFS could result in serious misallocation of resources in both a nat ional and international context. There is a possibility that the United States could be require d to import sugarcane-based ethanol to meet the advanced biofuel mandate, simultaneously exporting corn-based ethanol, while satisfying the national overall mandate. Since the provision o f subsidies for domestic ethanol production can stimulate exports of corn-based etha nol, they are equivalent to export subsidies in this situation. The removal of tariffs can reduce the burden imposed on consumers in the United States from the operation o f the RFS. Our analysis shows that it is extremely important to understand the potential imp act of the RFS on agricultural and energy markets.