Researchers Evaluate the Impact of the Renewable Fuels Standard on Biofuel Production

by Madelyn Ostendorf (Successful Farming) In a first-of-its kind study, researchers at Purdue University have illustrated the impact of the Renewable Fuel Standard (RFS) on the production of biofuels.

Over the past 15 years, production and consumption of biofuels have increased in the United States, caused by a variety of market factors and forces. Farzad Taheripour, the agricultural economist who led the study, says RFS played a critical role in reducing uncertainties in commodity markets. Most significantly, RFS helped farmers use their resources more efficiently.

“With producing more corn and soybeans, over time farmers were able to bring fallow land back to production, and U.S. annual farm income increased by $8.3 billion between 2004 and 2011, with an additional annual income of $2.3 billion between 2011 and 2016,” Taheripour says.

A vital tool used by the team was Purdue’s GTAP-BIO computational general equilibrium model for land use analyses related to the environmental, agricultural, energy, trade, and biofuel policies and actions. The model sorts commodities into several categories – like oil crops, vegetable oils, meals – and includes the production and consumption rates into its algorithm.

“The model takes into account the use of commodity feed stocks for food and fuel, and the competition or trade-offs between those and other market uses,” says Taheripour. “It also traces land use and handles intensification in crop production due to technological progress, multicropping, and conversion of unused cropland to crop production. This is the first biofuels study to be able to piece out all these factors individually and to combine that information with short-term models to capture finer and shorter-term impacts.” READ MORE

Excerpt from Frontiers in Energy Research: This paper examines the extent to which biofuel production has been driven over time by the U.S. Renewable Fuel Standard (RFS) and the extent to which it was driven by non-RFS policies and market forces. While the RFS has played a critical role in providing a secure environment to produce and use more biofuels, at least in the 2000s, it was not the only factor that encouraged the biofuel industry to grow. While the existing literature has successfully identified the key drivers of the growth in biofuels, it basically has failed to properly quantify the impacts and contributions of each of these drivers separately. This paper develops short- and long-run economic analyses, using Partial Equilibrium (PE) and Computable General Equilibrium (CGE) models, to differentiate the economic impacts of the RFS from other drivers that have helped biofuels to grow.

1) the bulk of the ethanol production prior to 2012 was driven by what was happening in the national and global markets for energy and agricultural commodities and by the federal and sometimes state incentives for biofuel production;

3) due to biofuel production, regardless of the drivers, real crop prices have increased between 1.1 and 5.5% in 2004–11 with only one-tenth of the price increases were assigned to the RFS,

4) for 2011–16, the long-run price impacts of biofuels were less than the time period of 2004–11, as in the second period biofuel production increased at much slower rate;

5) biofuel production, regardless of the drivers, has increased the US annual farm incomes by $8.3 billion between 2004–11 with an extra additional annual income of $2.3 billion between 2011–2016;

6) the modeling practices provided in this paper assign 28% of the expansion in farm incomes of the period of 2004–2011 and 100% of the extra additional incomes of the period of 2011–16 to the RFS. READ MORE