Take a Glance! Lessons from the RFS

December 07, 2017

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by Anthony Adragna (Politico's Morning Energy) The American Enterprise Institute is out with a report looking at policymaking lessons from the RFS. It argues the biofuels mandate would be better as a rate standard than a volume standard, EPA should issue multiyear rather than annual rules and that uncertainty should be explicitly incorporated into future rulemakings, among other things. READ MORE

Biofuels, the Renewable Fuel Standard, and the Farm Bill (American Enterprise Institute)

Excerpt from American Enterprise Institute: Key Points

The main potential benefits to society from the Renewable Fuel Standard (RFS) stemmed from potential reductions in greenhouse gas emissions due to increased biofuel and decreased fossil fuel use. The policy has failed to deliver these benefits.
The RFS experience produces three lessons relevant to government policymaking in this and other areas. The lessons are: (1) incorporate uncertainty, (2) do not give the regulator too much discretion, and (3) do not mandate things that do not exist.
Research into cellulosic biofuel technology should be funded directly, rather than indirectly through the cellulosic mandate. Past farm bills have contributed some funds to this end, but it would be better to fund such research through an agency that spans all climate-change mitigation technologies and can better assess the payoffs to the marginal research dollar.

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Farm bills have devoted relatively few federal resources to biofuels. The energy title in the 2014 Farm Act contained a projected $125 million per year for biofuels, less than 1 percent of projected non-nutrition spending. Actual spending since 2014 has been even lower as appropriations committees have reduced funding. Energy title funding focuses on the development of non-corn-based biofuels, which have potentially larger GHG reduction benefits than corn ethanol and which constitute all of the RFS-mandated growth in biofuels after 2015.³ As such, the energy title is best seen as an abetment to the RFS.

This paper addresses two questions:

What lessons from the RFS are useful for the policymaking process?
What farm bill initiatives could improve US biofuel policy?

I draw three lessons from the RFS that are relevant to government policymaking in this and other areas:

Incorporate uncertainty. Policymakers should make, implement, and analyze policy with a view to what might happen, rather than a single projection of what will happen.
Don’t give the regulator too much discretion. Political forces and legal challenges can undermine policy if the regulating agency has discretion to repeatedly adjust the policy parameters.
Don’t mandate things that don’t exist. Mandates are an inefficient and ineffective method for forcing technological progress.

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The main potential benefits of the RFS stem from reduction of GHG emissions. Such emissions represent a global externality that can be mitigated by subsidizing low-carbon fuels. Two other public benefits, both of which are likely to be small, are often touted by RFS advocates. The RFS could also improve energy security, which can be framed as a public good, and it could improve competition in the fuel sector by preventing the petroleum industry from excluding ethanol. READ MORE