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Renewable Fuel Standard: Potential Economic and Environmental Effects of U.S. Biofuel Policy

Renewable Fuel Standard: Potential Economic and Environmental Effects of U.S. Biofuel Policy

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Published by earthandlife
Biofuels, which are fuels derived from biological sources such as plant material, offer an alternative to petroleum-based transportation fuels. Interest in biofuels stems from two potential benefits: improved U.S. energy security and reduced life-cycle greenhouse gas emissions compared to fossil fuels. The Renewable Fuels Standard, enacted in 2005 and expanded in 2007 (RSF2), calls for the production of 36 billion gallons of biofuels by 2022. This report from the National Research Council, produced at the request of the U.S. Congress, provides an independent analysis of the economic and environmental effects associated with achieving the standard.
Biofuels, which are fuels derived from biological sources such as plant material, offer an alternative to petroleum-based transportation fuels. Interest in biofuels stems from two potential benefits: improved U.S. energy security and reduced life-cycle greenhouse gas emissions compared to fossil fuels. The Renewable Fuels Standard, enacted in 2005 and expanded in 2007 (RSF2), calls for the production of 36 billion gallons of biofuels by 2022. This report from the National Research Council, produced at the request of the U.S. Congress, provides an independent analysis of the economic and environmental effects associated with achieving the standard.

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Published by: earthandlife on Oct 04, 2011
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12/01/2011

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T
he United States isthe world’s biggestconsumer of crudeoil. High U.S. consumption hascontributed to two major prob-lems: low U.S. energy securityand high greenhouse-gas emis-sions. About 52 to 60 percent of oil consumed in the UnitedStates from 2005-2009 wasimported, and transportationfuels contribute about 30 percentof all carbon dioxide (CO
2
)emissions in the United States.Biofuels offer an alternativeto petroleum-based fuels.Interest in biofuels stems from their potential toimprove U.S. energy security because they are produced from renewable domestic sources andfrom their potential to provide life-cycle green-house-gas benets compared to fossil fuels (seeTable 1).The U.S. Congress enacted the EnergyIndependence and Security Act (EISA) in 2007(110. P.L. 140) “to move the United States towardgreater energy independence and security,” and“to increase the production of clean renewablefuels.The Renewable Fuel Standard subtitlewithin EISA mandates that different types of  biofuels be consumed each year (Figure 1). Thisreport, produced at the request of the U.S.Congress, provides an independent assessment of the economic and environmental effects associ-ated with achieving the RFS.
RFS Cellulosic FuelMandate Unlikely to beMet by 2022
The United States is already producing 14 billion gallons of corn-grain ethanol (an amountclose to the consumptionmandate for conventional biofuels in 2022) and hasinfrastructure for producing 2.7 billion gallons of biomass-baseddiesel (an installed capacity thatexceeds the consumptionmandate for biomass-baseddiesel in 2022, see Table 1).However, the consumption mandate for cellulosic biofuels will not likely be met.Although the United States can likely produceadequate cellulosic feedstock to be converted into biofuels to meet the 16 billion-gallon-consumptionmandate in 2022, there are currently no commer-cially viable bioreneries to convert such plantmatter into fuel. A previous National Academiesreport,
 Liquid Transportation Fuels from Coal and Biomass: Technological Status, Costs, and  Environmental Impacts
, estimated that if robustcommercial-scale technology was available by2015, aggressive deployment of this technology— where capacity build rate would double the buildrate for corn-grain ethanol seen in recent years— would be needed to meet the 2022 goal. However, policy uncertainty and high production costs maydeter investors from supporting aggressive
The Renewable Fuel Standard (RFS), which mandates that 35 billion gallons of ethanol-equivalentbiofuels and 1 billion gallons of biomass-based diesel be consumed in the United States by 2022, isnot likely to be met. Even if RFS is to be achieved, it may not be effective in addressing globalgreenhous-gas emissions because the extent of emissions reductions depends to a great degree onhow the biofuels are produced and what land-use or land-cover changes occur in the process.
Renewable Fuel Standard: PotentialEconomic and Environmental Effectsof U.S. Biofuel Policy
Source: National Renewable Energy Laboratory
 
deployment in the timeframe necessary to meet themandate.
Economic Effects
The report’s authoring committee used the BiofuelBreakeven Model to evaluate the costs and feasibility of a local or regional market for cellulosic biofuel madeusing a variety of different feedstocks. The modelestimates the minimum price that biomass producerswould be willing to accept for a dry ton of biomassdelivered to the biorenery, and the maximum price that bioreneries would be willing to pay to at least break even. These calculations showed that the prices thatsuppliers are willing to accept to break even exceed the prices that biofuel processors are willing to pay.Because the price of crude oil is highly volatile andit inuences willingness to accept and willingness to pay, the committee conducted the analysis under threedifferent oil prices: $52, $111, and $191 per barrel (thelow, reference, and high projections of oil prices for 2022from the 2010 Department of Energy’s Annual EnergyOutlook). The analysis projects that willingness toaccept exceeds willingness to pay for all feedstocksanalyzed assuming an oil price of $111 per barrel— meaning that no cellulosic feedstock market is feasiblewithout policy incentives such as government subsidiesto cover the price gap (see Table 2). Of the threescenarios analyzed, the gap between willingness toaccept and willingness to pay would only be closedunder the oil price of $191 per barrel.Alternatively, a carbon price of between $118 and$138 per tonne of carbon dioxide equivalent could closethe gap between willingness to accept and willingness to pay at an oil price of $111 per barrel for some feedstocks.A government subsidy of $1.01 per gallon of cellulosic biofuel blended with fossil fuel was established in 2008, but this payment is not sufcient to close the price gap at$111 per barrel of oil.
 
0510152025303540
   B   i   l   l   i  o  n  s  o   f   G  a   l   l  o  n  s
Year Conventional biofuelsBiomass-based dieselAdvanced biofuelsCellulosic biofuels
Figure 1.
This chart showsthe amounts of renewablefuel consumption mandated by the Renewable FuelStandard for each year  between 2008 and 2022. Thetotal amount is made up of four different types of  biofuel: cellulosic, advanced, biomass-based diesel, andconventional biofuels (seeTable 1). All volumes, exceptfor volumes of biomass- based diesel, are shown in billions of gallons of ethanol-equivalent.
The Renewable Fuel Standard Consumption Mandate
FuelWhat is it?How much less life-cycle greenhouse gasemissions must the biofuel emit comparedto petroleum-based fuels to qualify for RFS?
ConventionalbiofuelAny biofuels
1
At least 20% reductionCellulosicbiofuelFuel derived from the structural tissues(cellulose, hemicellulose, and lignin) of cropresidues and plants such as switchgrassAt least 60% reductionBiomass-based dieselDiesel produced from the oil of soybean andother vegetables and also from animal fatAt least 50% reductionAdvancedbiofuelIncludes cellulosic biofuels, biomass-baseddiesels, or other biofuels made from a sugar or starch other than those derived from cornAt least 50% reduction
1
The conventional biofuel mandate can be fullled with corn-grain ethanol.
Table 1
 
Finding
: Only in an economic environment character-ized by high oil prices, technological breakthroughs, anda high implicit or actual carbon price would biofuels becost-competitive with petroleum-based fuels.
 Effects on Land Prices
Unless there are major increases in agriculturalyields or improvements in the efciency of converting biomass to fuel, an additional 30 to 60 million acres of cropland would be required to produce enough biomassto meet the Renewable Fuel Standard by 2022.Therefore, increasing biofuel production to meet theRFS consumption mandate is expected to create compe-tition among different land uses and increase cropland prices.
 Effects on Food and Feed Prices
Diverting a portion of food crops, such as corn andsoybean, to biofuel production was one of the manyfactors that contributed to increasing prices for agricul-tural commodities, food, and livestock feed starting in2007. Other factors affecting food and feed pricesinclude growing global population, crop failures in other countries, high oil prices, decline in the value of the U.S.dollar, and speculative activity in the marketplace.
Environmental Effects
Although biofuels hold potential for providing netenvironmental benets compared to using petroleum- based fuels, specic environmental outcomes fromincreasing biofuel production to meet the RFS consump-tion mandate cannot be guaranteed. Some of the keyfactors that inuence environmental effects from producing feedstocks for biofuels are site specic anddepend on the type of feedstocks produced, the manage-ment practices used to produce them, prior land use, andany land-use changes that their production might incur.In addition to greenhouse-gas emissions, production anduse of biofuels affect air quality, water quality, water use, and biodiversity (see Box 1).Many processes affect the overall greenhouse-gasemissions from the production and use of biofuels; some processes result in sequestration of greenhouse gaseswhile others result in greenhouse-gas emissions. For example, carbon dioxide is stored in plants as they grow, but emissions are generated by fossil fuel combustionduring the process of manufacturing and transportingthe biofuel. Conversely, replacing an annual crop with a perennial biofuel crop could increase the amount of carbon dioxide sequestered at the site.Indirect changes in land use can also occur andaffect greenhouse-gas emissions. If the increased production of biofuel crops causes decreases in the production of commodity crops, the price of commodi-ties could increase. Farmers could respond to marketsignals and expand production of the displacedcommodity crop by converting noncropland to cropland.If the expanded production involves removing perennialvegetation on a piece of land and replacing it with anannual commodity crop, then the land-use change wouldincur a one-time greenhouse-gas emission from biomassand soil that could be large enough to offset greenhouse-gas emissions benets gained by displacing petroleum-based fuels with biofuels over subsequentyears. Furthermore, such land conversion may disruptany future potential for storing carbon in biomass andsoil. Although RFS imposes restrictions to discourageU.S. farmers from land-clearing or land-cover change,
FeedstockWillingnessto AcceptWillingnessto PayPrice Gap(Per Dry Ton)Price Gap(per Gallon of Ethanol)
Corn Stover (stalks, leaves, and cobs)$92$25$67$0.96Corn Stover in a 4-year Corn-Alfalfa Rotation$92$26$66$0.94Alfalfa$118$26$92$1.31Switchgrass in the Midwest$133$26$106$1.51Switchgrass in Appalachia $100$26$74$1.06
Miscanthus
in the Midwest$115$26$89$1.27
Miscanthus
in Appalachia$105$27$79$1.13Wheat Straw$75$27$49$0.70Short-Rotation Woody Crops$89$24$65$0.93Forest Residues$78$24$54$0.77
Table 2

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