Forget RFS, pollution tax or cap-and-trade key to tackling air pollution

The Renewable Fuel Standard (RFS), developed by Congress to cut back on greenhouse gas emissions and bolster the renewable fuel sector, is under review by the Environmental Protection Agency. EPA Administrator Scott Pruitt is expected to reveal any changes to the program by Nov. 30. As ethanol producers and oil refiners vie for the Administration’s attention on RFS, environmental economists say there’s a better way to cut down on air pollution.

C.-Y. Cynthia Lin Lawell, an economist specializing in energy, natural resources, and the environment at Cornell University, has written several papers on renewable fuel policy, including  a recent paper that critically examines the RFS and makes recommendations for future policy.  She says renewable fuel standards demand biofuel consumption beyond what can be technologically achieved and that air pollution is best addressed through a pollution tax or cap-and-trade program.


Lin Lawell says:

Gasoline consumption is an important source of air pollution, a major environmental concern in urban areas, and an important issue for transportation policy. Most economists recommend using incentive- or market-based instruments such as a pollution tax or a cap-and-trade program to address air pollution, as these policies are more likely to maximize net benefits to society. Despite this, policymakers typically favor renewable fuel mandates to reduce transportation fuel emissions.

“The Renewable Fuel Standard is an example of a renewable fuel mandate. Passed in its current form in 2007, the RFS mandated future U.S. biofuel consumption far beyond what was, and is, technologically feasible.  Complying with the RFS requires substantial investments in the development, commercialization, and production of cellulosic biofuels. It requires investment in biofuel production and blending capabilities by upstream and midstream fuel providers. And it requires investment in alternative fuel vehicles by consumers. The RFS has struggled to incentivize any large-scale production of cellulosic ethanol to date and has faced significant challenges related to the latter two forms of investment since 2013.

“To best address air pollution, policymakers should therefore use incentive- or market-based instruments such as a pollution tax or cap-and-trade program. If the Renewable Fuel Standard is used instead of incentive-based instruments, then in order to improve the Renewable Fuel Standard, policymakers should combine the Renewable Fuel Standard with a cost containment mechanism such as a credit window offering; incorporate uncertainty analysis into rulemaking; implement and enforce multi-year rules; tie waiver authority to compliance costs; and fund research and development in new technologies directly through other programs.”

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