Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs?
Michael Hoel, Mads Greaker and Knut Einar Rosendahl
Photo: Chicago Journals
Journal of the Association of Environmental and Resource Economists 2014 1 (3) pp. 337 - 363
Recent literature on biofuels has questioned whether biofuels policies are likely to reduce the negative effects of climate change. Our analysis explicitly takes into account that oil is a non-renewable natural resource. A blending mandate has no effect on total cumulative oil extraction. However, extraction of oil is postponed as a consequence of the renewable fuel standard. Thus, if emissions from biofuels are negligible, the standard will have beneficial climate effects. The standard also reduces total fuel (i.e., oil plus biofuels) consumption initially. Hence, even if emissions from biofuels are nonnegligible, a renewable fuel standard may still reduce climate costs. In fact our simulations show that even for biofuels that are almost as emissions intensive as oil, a renewable fuel standard has beneficial climate effects.