The US biofuel mandate as a substitute for carbon cap-and-trade

Abstract

Environmental economists might recommend a cap-and-trade program as a good way to lower emissions of greenhouse gases (GHGs), but US carbon cap-and-trade legislation was proposed and failed to become law. Instead, the biofuel use mandate is the primary existing GHG reduction program in the United States. The mandate effectively requires a rising amount of GHG abatement each year, but allows regulated parties to buy and sell credits to meet annual obligations. Although many aspects of the biofuel mandate look similar to a cap-and-trade program, there are additional requirements, such as feedstock eligibility limitations and waivers. The existence of the mandates is presumably conditional on all the legal requirements, but these conditions represent a departure from a strict GHG cap-and-trade program.We estimate GHG abatement costs of the mandate and compare them to a hypothetical cap-and-trade program targeting vehicle fuels. The mandate abatement cost is found to be higher than a hypothetical GHG cap-and-trade. Our results show that the RFS might be judged as a feasible substitute for a cap-and-trade regime that can deliver GHG reductions, but at a higher cost reflecting its multiple objectives.