Unintended consequences of carbon policies: Transportation fuels, land-use, emissions, and innovation

Stephen P. Holland, Jonathan E. Hughes, Christopher R. Knittel, Nathan Parker

Research output: Contribution to journalArticle

9 Scopus citations

Abstract

Renewable fuel standards, low carbon fuel standards, and ethanol subsidies are popular policies to incentivize ethanol production and reduce emissions from transportation. Compared to carbon trading, these policies lead to large shifts in agricultural activity and unexpected social costs. We simulate the 2022 Federal Renewable Fuel Standard (RFS) and find that energy crop production increases by 39 million acres. Land-use costs from erosion and habitat loss are between $277 and $693 million. A low carbon fuel standard (LCFS) and ethanol subsidies have similar effects while costs under an equivalent cap and trade (CAT) system are essentially zero. In addition, the alternatives to CAT magnify errors in assigning emissions rates to fuels and can over or under-incentivize innovation. These results highlight the potential negative effects of the RFS, LCFS and subsidies, effects that would be less severe under a CAT policy.

Original languageEnglish (US)
Pages (from-to)35-74
Number of pages40
JournalEnergy Journal
Volume36
Issue number3
DOIs
StatePublished - Jan 1 2015
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics
  • Energy(all)

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