Policy Research

Climate Consequences of Low-Carbon Fuels: The United States Renewable Fuel Standard

Jason Hill, Liaila Tajibaeva, Stephen Polasky

Summary

A study focusing on the Environmental Protection Agency’s new fuel standards as it pertains to biofuels and their capability of reducing greenhouse gases (GHGs). The study focuses on how low-carbon fuels such as biofuels only partially displace petroleum via the fuel market rebound effect. The fuel market rebound effect refers to the increase in consumption caused by an increase in fuel supplies that drives down costs. As the study shows the increase in biofuels into the energy mix will lead to the increase in GHGs due to low carbon displacement properties of the fuel. Fossil fuel displacement and the reduction of GHGs will only be effective when biofuels can displace enough fossil fuels to offset their carbon footprint.

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Policy Implications

The findings show that even with biofuels displacing petroleum the EPA’s new fuel standards will not cause a drop in GHGs due to the fuel market rebound effect. To reduce GHGs biofuels must become more energy dense and leave a smaller carbon footprint when produced and burned. Economists and engineers must also be brought into the production process to analyze the overall market consequences of introducing more biofuels into the energy supply as well as the GHG emissions created during the production of biofuels. Policy related to the increase of biofuel use must also be implemented. Government intervention into the energy mix would be beneficial to a certain extent. A system of mandates would be more preferable than taxes on fuels because mandates can conform to market effects. Government investments into increased biofuel research would also aid in meeting future GHG emission goals.