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Impacts of the U.S. Renewable Fuel Standard on Commodity and Food Prices

Author

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  • Taheripour, Farzad
  • Baumes, Harry
  • Tyner, Wally Taheripour, Farzad

Abstract

When a government imposes a regulation, it usually indicates that the market would not produce the socially desired outcome. A good example is the U.S. Renewable Fuel Standard (RFS). This paper examines the extent to which biofuel production has been driven over time by the RFS and the extent to which it was driven by market changes unforeseen at the time of RFS passage. While the RFS has played a critical role in providing a secure environment to produce and use more biofuels, it was not the only factor that encouraged the biofuel industry to grow. To some extent, at least in the 2000s, the non-RFS biofuel policies and market forces have also influenced the rapid expansion in biofuels. Over the past decade, many papers have studied the economic impacts of biofuel production and policy. The existing literature has failed to properly quantify the impacts and contributions of each of these drivers separately. This paper develops short and long run economic analyses, using Partial Economic (PE) and Computable General Equilibrium (CGE) models, to differentiate the economic impacts of the RFS from other drivers that have helped biofuels to grow. Results show: i) the bulk of the ethanol production prior to 2012 was driven by what was happening in the national and global markets for energy and agricultural commodities and by the federal and sometimes state incentives for biofuel production; ii) the medium to long run price impacts of biofuel production were not large; iii) Due to biofuel production, regardless of the drivers, real crop prices have increased between 1.1% and 5.5% in 2004-11 with only one-tenth of the price increases were assigned to the RFS, iv) For 2011-16, the long run price impacts of biofuels were less than the time period of 2004-11, as in the second period biofuel production increased at much slower rate, v) Biofuel production, regardless of the drivers, has increased US annual farm incomes by $10.6 billion between 2002-16 with 28% share for the RFS.

Suggested Citation

  • Taheripour, Farzad & Baumes, Harry & Tyner, Wally Taheripour, Farzad, 2019. "Impacts of the U.S. Renewable Fuel Standard on Commodity and Food Prices," Conference papers 333127, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333127
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    References listed on IDEAS

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