Tradeoff of the U.S. Renewable Fuel Standard, a General Equilibrium Analysis

Global production of biofuels has been expanding with the enduring concerns on climate change and energy security. The U.S. Congress has established a renewable fuel standard 2 (RFS2) rule that mandates annual combined production of 36 billion gallons (bg) biofuels by 2022 (USEPA, 2010). Large scale production of biofuels results in far-reaching intended and unintended consequences on the economy and environment. In this study, a computable general equilibrium model (CGE) - Applied Dynamic Analysis of Global Economy -- ADAGE-Biofuel is developed to examine the global implications of the U.S. RFS2 policy. This model is built upon a dynamic version of ADAGE model (Ross, 2009) by introducing eight crop categories, one livestock and one forestry sectors, seven first generation biofuels, three second generation biofuels and five land categories and explicitly model land-use changes. We find out that despite of continued increase in land productivity and energy efficiency, increase in population and economic growth leads to a global-wide increase in agriculture production, rise in price of food, agriculture, biofuel and energy and land conversion from the other four land types to cropland from 2010 to 2025 when RFS2 is not implemented and biofuel consumption remain at the base year (2010) level in all the regions until 2025 (BAU scenario). The implementation of RFS2 policy would require 36.3 million ha (mha) of land for switchgrass production by 2025, where 34.8 mha from existing cropland, 0.9 mha from pasture, and 0.6 mha from managed forest land. Compared with the BAU scenario, price is projected to increase by around 5~7% for eight crops, 1.6% for livestock and 1.6% for forestry as a result of reducing production. Globally, due to reduction in agriculture exports from U.S. as a result of the RFS2 policy, all other regions would allocate slightly more land for crop and food production, leading to gentle loss of natural grassland and natural forestland, especially in Africa, which would lose 0.5 million ha of natural grassland for crop and livestock production. The RFS2 policy would bring environmental benefits too. The accumulated carbon saving from 2010 to 2025 would be arround 392 mmt c globally with 207 mmt c from fossile fuel and 185 mmt from land. Among it, U.S. alone would contribute 300 mmt c with 208 mmt c from fossile fuel and 92 mmt c from land.