Working Paper: NBER ID: w19636
Authors: Stephen P. Holland; Jonathan E. Hughes; Christopher R. Knittel; Nathan C. Parker
Abstract: Renewable fuel standards, low carbon fuel standards, and ethanol subsidies are popular policies to incentivize ethanol production and reduce emissions from transportation. Compared to carbon trading, these policies lead to large shifts in agricultural activity and unexpected social costs. We simulate the 2022 Federal Renewable Fuel Standard (RFS) and find that energy crop production increases by 39 million acres. Land- use costs from erosion and habitat loss are between $277 and $693 million. A low carbon fuel standard (LCFS) and ethanol subsidies have similar effects while costs under an equivalent cap and trade (CAT) system are essentially zero. In addition, the alternatives to CAT magnify errors in assigning emissions rates to fuels and can over or under-incentivize innovation. These results highlight the potential negative efficiency effects of the RFS, LCFS and subsidies, effects that would be less severe under a CAT policy.
Keywords: Transportation; Carbon Policies; Land Use; Emissions; Innovation
JEL Codes: H4; Q2; Q4; Q5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| RFS (R50) | Ethanol Production (Q42) |
| LCFS (Y10) | Ethanol Production (Q42) |
| Ethanol Subsidies (Q42) | Ethanol Production (Q42) |
| RFS (R50) | Agricultural Land Use (Q15) |
| LCFS (Y10) | Agricultural Land Use (Q15) |
| Ethanol Subsidies (Q42) | Agricultural Land Use (Q15) |
| RFS (R50) | Uncontrolled Emissions (Q52) |
| LCFS (Y10) | Uncontrolled Emissions (Q52) |
| Ethanol Subsidies (Q42) | Uncontrolled Emissions (Q52) |
| CAT (Y90) | Uncontrolled Emissions (Q52) |
| RFS (R50) | Innovation Incentives (O31) |
| LCFS (Y10) | Innovation Incentives (O31) |
| CAT (Y90) | Innovation Incentives (O31) |