According to RFF visiting scholar Arthur Fraas and economist Robert Johansson, the push for American-made biofuels may conflict under certain conditions with strategies to reduce greenhouse gas emissions.
While policymakers may treat increasing energy security and lowering greenhouse gas (GHG) emissions as complementary goals, in fact there are cases where they may conflict. One important illustration of this may be the Energy Independence and Security Act of 2007 (EISA).
The goals of EISA are to increase the United States' energy independence and security while increasing the production of renewable fuels that reduce greenhouse gases emissions. Title II of the act, for example, establishes a mandate for increasing the use of cellulosic ethanol to at least 16 billion gallons by 2022. While this mandate might reduce greenhouse gas emissions from the transportation sector, it may clash with other efforts to reduce the nation's overall GHG emissions over the next 20 years. For example, EPA could determine that the co-firing of biomass with coal represents the best available control technology (or BACT) for the reduction in GHG emissions from existing coal-fired power plants under the Clean Air Act (CAA) New Source Review (NSR) provisions. The use of biomass to replace coal in electricity generation yields 2 to 3 times the GHG reduction associated with using cellulosic ethanol to displace gasoline.
If the nation's production capacity for biomass is limited relative to the EISA requirements, there will be a trade-off between the energy security gains of the biofuels mandate under EISA and the more effective (in terms of GHG emission reductions) use of biomass in the electric utility sector. One means of evaluating this trade-off is to examine the factors that affect the cost-effectiveness of diverting biomass from electricity production to cellulosic ethanol production. The cost-effectiveness of EISA will depend in large measure on (1) constraints on biomass production, that is, the extent to which the EISA mandate may crowd out the use of biomass to generate electricity; (2) the world oil price (and the cost of producing cellulosic ethanol); and (3) the projected damages associated with carbon emissions [i.e., the social cost of carbon]. As a result, energy security benefits are likely a smaller factor in determining the costs and benefits of the mandate for cellulosic ethanol as compared to other factors, except where the world oil price is relatively high and the social cost of carbon is relatively low.
This paper suggests, then, that if there are constraints on the production of biomass within this timeframe there could be a more cost-effective way to achieve our energy and environmental goals. Setting appropriate energy security fees for petroleum products (fees that would penalize the use of petroleum-based fuels relative to biofuels) along with emission fees (fees that would penalize emissions of greenhouse gases) across fuels and energy production activities could allow the market to determine the best mix of fuels and technologies to meet these goals. Artificial constraints—such as mandated volumes of biofuels—can interfere with achieving cost-effective energy security and GHG reductions, imposing additional costs on the economy beyond the large costs anticipated from an optimal set of climate and energy policies.
