FEEM working papers "Note di lavoro" series
2014 .032

Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs?


Authors: Mads Greaker, Michael Hoel, Knut Einar Rosendahl
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Keywords: Blending Mandate, Renewable Fuel Standard, Biofuels, Climate Costs
JEL n.: Q27, Q41, Q54

Abstract

Recent literature on biofuels has questioned whether biofuels policies are likely to reduce the negative effects of climate change. In this paper we make two contributions to the literature. First, we study the market effects of a renewable fuel standard in a dynamic model taking into account that oil is a non-renewable resource. Second, we model emissions from land use change explicitly when we evaluate the climate effects of the renewable fuel standard. We find that global extraction of oil is postponed as a consequence of the renewable fuel standard. Thus, if emissions from biofuels are negligible, the standard will have beneficial climate effects. Furthermore, we find that the standard also tends to reduce total fuel (i.e., oil plus biofuels) consumption initially. Hence, even if emissions from biofuels are non-negligible, a renewable fuel standard may still reduce climate costs. In fact our simulations show that even for biofuels that are almost as emissions-intensive as oil, a renewable fuel standard has beneficial climate effects.

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Suggested citation: Greaker, M., M. Hoel, K. E. Rosendahl, (2014), 'Does a Renewable Fuel Standard for Biofuels Reduce Climate Costs?, Nota di Lavoro 32.2014, Milan, Italy: Fondazione Eni Enrico Mattei.

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