An economic evaluation of alternative biofuel deployment scenarios in the USA

Energy market conditions have shifted dramatically since the USA renewable fuel standards (RFS1 in 2005; RFS2 in 2007) were enacted. The USA has transitioned from an increasing dependence on oil imports to abundant domestic oil production. In addition, increases in the use of ethanol, the main biofuel currently produced in the USA, is now limited by the blend wall constraint. Given this, the current study evaluates alternative biofuel deployment scenarios in the USA, accounting for changes in market conditions. The analysis is performed with a general equilibrium model that reflects the structure of the USA biofuel market as the transition to advanced biofuels begins. Results suggest that ethanol consumption would increase, albeit slowly, if current biofuel deployment rates of about 10% are maintained as persistently lower oil prices lead to a gradual increase in the consumption of liquid transportation fuels. Without the blend wall constraint, this study finds that the overall economic impact of a full implementation of the USA RFS2 policy is largely neutral before 2022. However, the economic impacts become slightly negative under the blend wall constraint since more expensive bio-hydrocarbons are needed to meet the RFS2 mandates. Results for a scenario with reduced advanced biofuel deployment based on current policy plans show near neutral economic impacts up to 2027. This scenario is also consistent with another scenario where the volume of bio-hydrocarbons deployed is reduced to adjust for its higher cost and energy content relative to deploying the mandated RFS2 advanced biofuel volumes as ethanol. The important role of technological change is demonstrated under pioneer and accelerated technology scenarios, with the latter leading to neutral or positive economic effects up to 2023 under most blend wall scenarios. All scenarios evaluated in this study are found to have positive long-term benefits for the USA economy.