10-Year Review of Renewable Fuel Standard Impacts to the Environment, the Economy, and Advanced Biofuels Development: An Update
By University of Tennessee professor Dr. Daniel De La Torre Ugarte
In December 2015, the Environmental Protection Agency (EPA) published its Renewable Fuel Standard (RFS) rule, setting renewable fuel volume requirements retroactively for the years 2014 and 2015, and in a forward-looking context for 2016.
On May 18, 2016, the EPA published its proposed mandate volumes for 2017, increasing by 300 million gallons the volume of largely corn-based ethanol that will need to be blended into the nation’s fuel supply relative to 2016. Although EPA increased these requirements in 2016 and is seeking to do so again in 2017, the agency in both cases chose to keep these levels below those called for by Congress, thus acknowledging that the volumes envisioned by Congress nearly a decade ago no longer align with the realities of the present marketplace.
While the RFS has functioned as a farm support mechanism heretofore, it seems reasonable to consider, with more than a decade’s worth of data and experience available on which to draw, whether the policy has helped produce the kinds of economic and environmental outcomes that it was designed to support.
Given the serious environmental and economic impacts of the RFS, highlighted in my research findings as well as many others, I continue to believe now is the time to create more modernized and efficient policy aimed at promoting advanced biofuels. With a policy objective that is focused on lowering GHG emissions, advanced biofuels can play an important role in meeting this objective.2 Yet, it is clear that the focus of the RFS thus far – for more than a decade – has been on corn ethanol.
In this report, I set out to examine how the United States is affected environmentally and economically from the EPA’s final RFS volumes for 2014–2016.3 In summary, my findings are:
1) Corn ethanol demand would have been 4.56 billion gallons in 2016 (or 30 percent of projected production) under a scenario in which we did not have a federal RFS policy in place (referred to throughout this paper as “No RFS/BTC scenario”). Cellulosic ethanol demand would have been 10.43 billion gallons in 2016 (or 70 percent of projected ethanol production) under a scenario in which resources and mandates that have otherwise been used to support corn ethanol development had been redirected instead to cellulosic ethanol (referred to as “Cellulosic Replacement scenario”).
2) The total number of acres planted to support corn development would have been reduced significantly, between 10-15 percent, under the two alternative scenarios when compared to the business-as-usual scenario (“BAU scenario”) we have in place today. This results in a 33-41 percent reduction in corn prices as the demand reduction far outstrips the supply reduction. The reduced corn plantings are replaced mostly with wheat and soybeans, which increases supply and generates a 12-13 percent decrease in wheat prices and a 9-12 percent drop in soybean prices;
3) Corn, soybeans, and wheat price reductions would have translated to approximately $12.9 billion and $10.0 billion of annual consumer wholesale expenditure savings, but a loss of $18.2 billion and $12.1 billion in net realized farm income in the No RFS/BTC and Cellulosic Replacement scenarios, respectively;
4) The overall, net economic benefit of the No RFS/BTC and Cellulosic Replacement scenarios in 2016 would have been $29.2 billion and $42.4 billion, respectively;
5) In 2016, carbon emissions from agricultural production and input use would have been 3.4 million metric tons lower in the No RFS/BTC scenario as compared with the BAU – equivalent to taking 716,000 cars off the road for a year. Under the Cellulosic Replacement scenario, carbon emissions from agricultural production and input use would have been 6.2 million metric tons lower –equivalent to taking 1.3 million cars off the road;
6) If the 2017 proposed corn ethanol volumes were to become final, statutory corn ethanol volumes would increase by approximately two percent over 2016 volumes. As such, I would expect to see emissions reduced by a proportional amount in the scenarios that exclude the business-as-usual case – that is, 730,000 and 1.33 million cars off the road annually in the No RFS/BTC and Cellulosic Replacement scenarios, respectively;
7) The amount of soil erosion that takes place under both non-BAU scenarios decreases significantly relative to BAU. Annual soil erosion between 2008 and 2016 would have decreased in the No RFS/BTC and the Cellulosic Replacement by 94 and 204 million metric tons of soil, respectively; and
8) Fertilizer and chemical consumption decreases relative to the BAU in the No RFS/BTC scenario by 4.4 percent and 2.8 percent, respectively. The Cellulosic Replacement scenario shows a 12 percent increase in fertilizer and a 1.4 percent decrease in chemical consumption compared with the BAU.