Ten years of the Renewable Fuel Standard

by Fiona Paine on Wednesday October 21, 2015

In October, a group of experts gathered at the Brookings Institute to discuss the Renewable Fuel Standard, a policy to promote biofuels that was enacted ten years ago. Participants in the event assessed the success of the legislation and evaluated its effects on greenhouse gas emissions, food prices, and fuel prices.

The Renewable Fuel Standard (RFS) sets a minimum amount of renewable fuels to be blended into the ground transportation fuel supply. These levels are broken down into subcategories including setting a minimum quantity of advanced renewable fuel or cellulosic fuel. 

Starting the discussion, Terry Dinan from the Congressional Budget Office spoke about the challenges facing the RFS. Currently the RFS standards are met by E-10, which is a blend of corn based ethanol (10%) and gasoline (90%). In the future, a rapidly growing share of cellulosic-based fuels – which are more capital intensive than corn ethanol – will be mandated. In order to meet the RFS mandate, the percentage of biofuel in gasoline will have to increase. However, a switch away from E-10 to fuels with a higher percentage of biofuel will involve a major infrastructure investment, posing a challenge known as the “blend wall”.

Next, the conversation moved to the impact of the RFS on food and fuel prices. Bruce Babcock of Iowa State University referenced current research that suggests neither food nor fuel prices have remained unaffected by the RFS. There was some disagreement as to whether the RFS has increased the price of food in developing countries, specifically in Africa.

Timothy Searchinger from Princeton University discussed biofuels from a land-use perspective. He called into question the validity of models that use life cycle analysis for biofuels. On his view, biofuels are an inefficient use of land. “On 75% of the world’s land, the benefit of using solar cells today, compared to optimistic views of cellulosic ethanol in the future, is a minimum of 100 times more energy.” He went on to state “the only way biofuels can reduce greenhouse gas emissions is if you estimate that land is practically free from a carbon standpoint.”

Speaking last and taking a broad view of the RFS compared with other policy options, Christopher Knittel, Professor of Energy Economics at the MIT Sloan School of Management and Director of the MIT Center for Energy and Environmental Policy Research (MIT CEEPR), pointed out that “economists largely agree that the most efficient way to reduce greenhouse gas emissions is through a carbon tax or a cap and trade program”. According to his calculations, the RFS is about 2.5 times more expensive than cap and trade or a carbon tax. The average cost per ton of carbon abated is $90 for the RFS compared with the social cost per ton of carbon, which is around $40.1,2,3,4

Overall, the panel seemed to agree that the Renewable Fuel Standard has not been successful in its goal of reducing greenhouse gas emissions. Even worse, the policy has been economically inefficient. On a more positive note, however, the expected side effects of rising fuel and food prices did not materialize, at least not in line with the most pessimistic forecasts. In any case, the discussion of how best to adapt and improve this piece of legislation is sure to continue in the future.

1Christopher R. Knittel, Ben S. Meiselman, and James H. Stock (2015), “The Pass- Through of RIN Prices to Wholesale and Retail Fuels under the Renewable Fuel Standard.” CEEPR WP-2015-010, MIT, July 2015.
2Stephen P. Hollard, Jonathan E. Hughes, Christopher R. Knittel, and Nathan C. Parker (2013), “Unintended Consequences of Transportation Carbon Policies: Land-Use, Emissions, and Innovation.” NBER Working Paper No. 19636, NBER, November 2013.
3Christopher R. Knittel and Aaron Smith (2012), “Ethanol Production and Gasoline Prices: A Spurious Correlation.” CEEPR WP-2012-006, MIT, July 2012.
4Stephen P. Holland, Jonathan E. Hughes, Christopher R. Knittel, and Nathan C. Parker (2011), “Some Inconvenient Truths About Climate Change Policy: Distributional Impacts of Transportation Policies.” CEEPR WP-2011-016, MIT, August 2011.