Policy of mandating minimum biofuel use hard of hearing dating

Last summer, the US Environmental Protection Agency (EPA) expanded the Renewable Fuel Standard (RFS), mandating the continued use of ethanol and other biofuels through 2016.

While the new standard maintains the current level of ethanol produced from corn, it increases the use of other biofuels.

In a recent study, my colleagues and I examined these long-term effects, focusing on food prices and carbon emissions.

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The lessons are meant to inform both future RFS rulemaking and the design of future climate policies. First, incorporate uncertainty into rulemaking; second, implement multi-year rules.

Multi-year rulemaking allows for longer periods between major regulatory decisions and sends greater certainty to markets.

Published by Oxford University Press on behalf of the Agricultural and Applied Economics Association.

More than 40 percent of US corn is now used to produce ethanol, which can be a cleaner alternative to gasoline used for transportation.

In particular, EPA’s target in 2016 for cellulosic biofuel—made from wood by-products and grasses—is six times higher than what was produced in 2014, and the target for total renewable fuels is 10 percent higher. By 2020, it prescribes a 7 percent minimum for biofuels in the transportation sector of every EU nation. Environmentalists argue that the related reduction in carbon emissions is minimal, while hunger groups point to the effects on food prices and poverty.

By diverting corn away from traditional uses, food and feed prices may rise, although higher corn prices may induce farmers to bring additional acreage into production—lowering prices but increasing indirect carbon emissions.

Among the largest renewable energy mandates enacted to date is the Renewable Fuel Standard (RFS), which mandates biofuel consumption far beyond what is feasible with current technology and infrastructure.

We critically review the methods used by the Environmental Protection Agency to project near- and long-term compliance costs under the RFS, and draw lessons from the RFS experience to date that would improve the program’s efficiency.

Put another way, if diets were kept constant, food prices would actually fall over time without energy regulation.

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