Designing Climate Policy: Lessons from the Renewable Fuel Standard and the Blend Wall

Abstract

Many policies mandate renewable energy production to combat global climate change. These policies often differ significantly from first-best policy prescriptions. Among the largest renewable energy mandates enacted to date is the Renewable Fuel Standard (RFS), which mandates biofuel consumption far beyond what is feasible with current technology and infrastructure. In this article, we critically review the methods used by the Environmental Protection Agency to project nearand long-term compliance costs under the RFS, and draw lessons from the RFS experience to date that would improve the program's efficiency. The lessons are meant to inform both future RFS rulemaking and the design of future climate policies. We draw two lessons specific to the RFS. (1) Incorporate uncertainty into rulemaking. Make, implement, and analyze policy with a view towards what might happen, rather than a projection of what will happen. (2) Implement multiyear rules. Multi-year rulemaking allows for longer periods between major regulatory decisions and sends greater certainty to markets. We also make two more general recommendations. (3) Tie waiver authority to compliance costs or include cost containment provisions. Explicit and transparent cost containment mechanisms send a stable policy signal to markets. (4) Fund research and development of new technologies directly rather than mandating them. Future technological advancement is uncertain, and mandating new technologies has proven to be largely ineffective to date, particularly in fuel markets.

Can Environmental Regulations Promote Greenhouse Gas Abatement in OECD Countries? Command-and-Control vs. Market-Based Policies

“…Moreover, several studies have compared the effects of the two types of environmental regulations, but the research conclusions are still conflicting. Some research held that, in comparison with command-and-control environmental regulations, market-based environmental regulation policies had the best environmental protection effect and were most widely used [44]. Market-based environmental regulations are believed to be superior in the reduction of production cost and the promotion of energy-saving technologies to command-and-control environmental regulations [45].…”

Approaches for More Efficient Biological Conversion of Lignocellulosic Feedstocks to Biofuels and Bioproducts

“…3 In the United States, the Energy Independence and Security Act (EISA) of 2007 set an annual blending target of 16 billion gallons of cellulosic biofuels by 2022, but 2017 production was less than 300 million gallons. 4,5 The scientific and technological progress made in the last two decades has addressed many of the challenges initially facing cellulosic fuels and bioproducts. Furthermore, the confluence of highthroughput and data-driven advanced technologies with disruptive tools in genome editing and genomics has set the research community on a path toward rapid discovery and improvement.…”

Drop-in biofuels offer strategies for meeting California’s 2030 climate mandate

“…This increases the biomass requirement by 33% because of the lower liquid fuel yield relative to petroleum. Requiring out-of-state biomass is not inherently problematic, as some sparsely-populated and agriculturally-rich states will 5 Data provided in the BTS suggests that feedstock handling costs range from $10 to $200 ton. We account for this variability in our commercialization scenarios.…”

“…The role for biofuels in transportation sector emissions reductions has historically been constrained by the extent to which commercially-produced fuels (e.g., ethanol and biodiesel) can be technically blended into petroleum-derived fuels with required advanced vehicle equipment; failures to meet biofuel production targets are in part due to this blend wall and the difficulty in competing with conventional fuels while crude oil prices remain low. Limitations related to the blend wall, and other shortcomings in the implementation of the Renewable Fuel Standard program are explored more comprehensively by Lade et al [5]. Drop-in biofuel routes are not yet as technologically mature as ethanol production, but recent progress suggests that these fuels may be entering the market in greater volumes in the near future [6,7], and climate change mitigation scenarios have yet to explore a future where this biofuel blend wall was completely removed.…”