The U.S. Renewable Fuel Standard Melissa Powers Assistant Professor, Lewis & Clark Law School Portland, OR USA

Corn Ethanol’s Dominance in the Biofuels Industry Agriculture subsidies and tax incentives Ethanol subsidies Fuel blending requirements 2005 Energy Policy Act = First federal renewable fuel standard (RFS1) 95% of all U.S. biofuels = corn ethanol

Problems with Corn Ethanol Localized environmental problems: water, air, land Food supply reduction: local (animal feed) and global (U.S. grain exports)

Corn Ethanol and Greenhouse Gas Emissions Direct emissions v. direct offsets – Emissions: soil tilling, fertilizers, manufacturing emissions (especially if coal-fired ethanol plants) – Offsets: plants uptake CO 2 Indirect land use – U.S. and European biofuels policies → food or fuel production in other countries – If food/fuel production displaces tropical forests and peatlands → CO 2, N 2 O, CH 4

RFS1 RFS1 = absolute requirements for renewable fuel blending – 2006 = 4 billion gallons – 2012 = 7.5 billion gallons Two mitigation measures – Equivalence values and trading – Waiver

RFS1: Equivalence Values and Trading – Parties can meet RFS requirements by trading credits representing renewable fuel production (RINs) – Each gallon of renewable fuel has a different value – Corn ethanol = 1Cellulosic biofuel = 2.5 Everything else in between – Theoretically, higher equivalence value should spur increased advanced biofuel production – In reality, tax credits and subsidies eclipse RINs

RFS1: Equivalence Values and Trading – Trading: Credits worth less than 5 cents/ gallon; never more than 6.5 cents Far less than subsidies (e.g. excise tax credit = 51 cents/gallon; total estimated subsidy value = $1.06-$1.38) Equivalence values too low to make any difference ($0.065 * 2.5 = $0.165)

RFS1: Waiver Waiver: EPA may waive the RFS if “implementation of the requirement would severely harm the economy or environment of a State, region, or the United States” Texas waiver request – 2008 skyrocketing oil prices → high ethanol demand → high corn and feed prices → cattle industry damage

RFS1: Waiver EPA will grant waiver only if – RFS alone is the cause of harm to the economy or environment – Resulting harm is severe – and waiving RFS for a year will remedy the harm Texas waiver request denied – RFS not the sole cause of corn ethanol prices and demand – Damage to economy not “severe”: $ million damages v. $ 1 trillion state economy

RFS1: Waiver RFS will never be sole cause of harm to environment/economy Severe harm and clear relief through waiver will be extremely difficult to prove

RFS2

RFS2: Greenhouse Gas Reduction Requirements 20% reduction – new renewable fuels (including corn ethanol) – Produced in facilities for which construction commenced after Dec. 31, % reduction – advanced biofuels (not corn ethanol) + biomass-based biodiesel 60% reduction – cellulosic biofuels (compared to baseline emissions from fossil fuels)

RFS2: Production Requirements

RFS2: GHG Emissions Reductions Lifecycle Analysis – Direct and indirect – Domestic and international Factors – Agricultural practices – Ethanol production: efficiency, fuels, location – Responses in other countries – biofuel and food production → land conversion

RFS2: Grandfathered Corn Ethanol 20% reduction requirement applies only to corn ethanol produced in facilities for which construction commenced after Dec. 31, 2009 – “Old” corn ethanol grandfathered in – indefinitely – Old corn ethanol production capacity = 15 billion gallons through 2022

RFS2: Grandfathered Corn Ethanol

RFS2: Grandfathered New Ethanol? 20% reduction requirement for new corn – Proposed rule: direct + indirect emissions = no new corn ethanol production – Final rule: most new corn ethanol production will meet 20% requirement Assumes high-efficiency plants Assumes less indirect land use change But level of certainty: – Over 50% confident that new corn ethanol would meet 20% reduction requirement – 95% certain that new corn would reduce emissions 7-32% compared to baseline

RFS2: Grandfathered New Ethanol? If EPA is wrong, will Congress/EPA grandfather new corn ethanol, too?

RFS2: Important Design Elements EPA’s lifecycle greenhouse gas emissions analysis Mandate for advanced and cellulosic biofuels = clear signal for investors and R&D – Algae – Switch grass – Waste vegetable oil

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