Economic Costs and Environmental Consequences of U.S. Biofuels Policies

The Energy Independence and Security Act of 2007 sets a renewable fuel standard (RFS) that requires the use of 9 billion gallons of renewable liquid fuels in 2008 and rises to 36 billion by 2022. Of this, 15 billion gallons of corn-based ethanol is required by 2015 (remaining at this level thereafter) and the additional 21 billion gallons is mandated to be obtained from cellulosic ethanol and other advanced biofuels by 2022. The purpose of the proposed project is to examine the effects of the RFS, employing a simulation model to evaluate the policy's efficiency and distributional implications. The project investigates the impacts of increased U.S. biofuels mandates for cornbased and cellulosic ethanol on blended fuel consumption, relating these impacts to changes in fuel mix (regular gasoline and ethanol), changes in fleet composition (e.g. shifts to higher mileage automobiles) and vehicle miles traveled (VMT). We also examine the impacts of increased U.S. biofuels mandates on agricultural production, relating these effects to changes in the acreage of major crops, rotation practices, tillage systems, land allocated to the conservation reserve program (CRP), and volume of crop exports. We also explore how the costs are distributed across different agents in the economy and regions of the country, thus providing useful estimates to the northeast region as well as other Sun Grant regions. Finally, the project measures the effects of increased U.S. biofuels mandates on greenhouse gas (GHG) emissions, relating our estimates to those of standard lifecycle analysis (LCA) and to recent studies that account for unintended land use effects. A central theme of the proposed work is that LCA alone can generate very misleading conclusions related to the GHG emissions effects of biofuels policies.