New Iowa State Study Shows Benefits Of RFS Program
In a paper forthcoming in the American Journal of Agricultural Economics, Iowa State researchers demonstrate that their tractable multi-market equilibrium model designed to evaluate alternative biofuel policies confirms that the current RFS program benefits the agriculture sector, and leads to overall welfare gains for the U.S. The model considers biodiesel and ethanol markets and is simulated to analyze alternative scenarios, including the repeal of all RFS mandates, the 2015 level of mandates, and the projected 2022 RFS mandates. The analysis shows that the U.S. benefited from lower gasoline, crude oil, and crude oil import prices. Researchers estimated a welfare gain of $2.6 billion to the U.S. from the RFS program, primarily due to the impact of the policies on trade.
Additionally, the analysis predicts that full implementation of the 2022 statutory mandates will be costly and produce limited welfare gains, stating that the agricultural terms of trade are a significant contribution to the RFS generating a positive impact. To compensate for this, researchers recommend the mandate for corn-based ethanol production expand beyond the 15 billion gallon cap envisioned by the Energy Independence and Security Act of 2007 (EISA). The report also recommends a reduction of biodiesel production from current levels, and no cellulosic biofuel production.