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Biofuels Under a Microscope
Friday, August 18, 2017 2:47PM CDT

By Todd Neeley
DTN Staff Reporter

OMAHA (DTN) -- The Renewable Fuel Standard has had an overall positive impact on U.S. agriculture and on the U.S. economy as a whole, a new economic study by Iowa State University shows. However, the policy has done little to reduce greenhouse gas emissions worldwide, and further RFS benefits would come only with the continued expansion of corn ethanol and a reduction in biodiesel production, the study suggests.

The Center for Agricultural and Rural Development at Iowa State University's study, "The Renewable Fuel Standard in Competitive Equilibrium: Market and Welfare Effects," concludes what farmers across the Corn Belt already knew: RFS biofuels mandates have provided price support for both corn and soybeans. The study is slated for publication in the American Journal of Agricultural Economics.

"We find that the RFS has indeed proved to be a remarkably effective tool for farm support," the report said. "Relative to the scenario of no biofuel policies, the 2015 level of mandates entails a 34% increase in corn price and a 9% increase in soybean price. The mandates' impact on energy prices is smaller in absolute terms, with crude oil price decreased by 1.4%."

The policy has boosted the value of the U.S. agriculture sector by $14.1 billion, or nearly $6,800 per American farm.

Without the RFS, the authors found, corn prices would average just $2.75 per bushel in 2015, far below the cost of production.

However, with the RFS, corn prices averaged $3.68 per bushel, or about a 34% increase above the no-RFS scenario.

When it comes to the broader economy in the United States, the study said current RFS mandates when compared to a scenario without the policy, generate a $2.6 billion benefit.

STUDY NEGATIVES

The study also comes to a number of conclusions that could be controversial in rural America.

The analysis said the RFS has little effect on reducing greenhouse gas emissions worldwide.

"The RFS impact on reducing carbon emission, on the other hand, turns out to be nil once we account for the leakage effect (due to the induced increase in the rest of the world's fossil fuel consumption)," the study said.

In January, however, a USDA lifecycle analysis of corn ethanol found GHG emissions associated with corn ethanol in the United States are about 43% lower than gasoline. (For the full USDA analysis, visit http://bit.ly/…).

Geoff Cooper, executive vice president of the Renewable Fuels Association, told DTN the study supports the idea that the RFS reduces GHG emissions in the United States.

"Well, the 'nil' part is misleading," he said. "It (the study) says U.S. GHGs are significantly reduced, but then it argues that international greenhouse gases go up because the RFS makes oil cheaper and the rest of the world uses more oil. So the study suggests U.S. GHG reductions are basically offset by international GHG increases. This is the so-called rebound effect. But, by this logic, the U.S. should not do anything that reduces oil demand or price. So should we abandon CAFE standards, ban electric vehicles and forbid mass transit?"

Among the findings, which are based on an economic model, the best-case scenario would be to increase corn ethanol production and reduce biodiesel production.

"To further improve welfare from the 2015 mandate levels, the model suggests that corn ethanol production should be increased, whereas biodiesel production should be decreased," the study said.

Kaleb Little, senior communications manager for the National Biodiesel Board, said biodiesel has benefitted rural America.

"Created in a bipartisan law, the Renewable Fuel Standard is an effective method to create a renewable-fuels market and related high-value jobs here in the United States," Little said in an email to DTN.

"Countless environmental studies show biodiesel significantly reduces greenhouse gas emissions compared to petroleum diesel, and economic studies show positive impacts on rural communities and U.S. markets, due in part to the diversity of the feedstocks we can utilize. Though the study reinforces crop and livestock producers have benefited from biodiesel production, several assumptions miss the mark, but the track record of the renewable fuels industry and the RFS is clear -- this is a successful program worthy of continued support and growth."

In addition, the authors of the study found that the full implementation of the 2022 statutory RFS volumes to 36 billion gallons by 2022 would be costly and lead to losses in the economy.

ECONOMIC SAVINGS

The analysis found the RFS in 2015 saved the U.S. economy $17.8 billion in gasoline expenses, compared to a no-RFS scenario.

The savings equal about $142 per American household. In addition, ISU said in the study, gasoline prices were 18 cents per gallon, or 9.5% lower because of the RFS, and the policy has bolstered federal tax revenues.

The results highlight how the RFS contributes to domestic energy security.

"The RFS leads to a modest contraction in domestic crude oil production, and a larger decline in imports of crude oil," the authors found.

According to the study, crude oil imports were nearly 200 million barrels lower in 2015 than without the RFS. Meanwhile, domestic crude oil production was only 0.3% lower in "2015 RFS" case than in the "no-RFS" case.

"This new study confirms that American families and our nation's economy significantly benefit from the Renewable Fuel Standard," said RFA President and CEO Bob Dinneen.

"Whether it is lower gas prices, decreased oil imports from hostile nations, a more valuable agriculture sector, or reduced greenhouse gas emissions, this study underscores that the RFS is indeed delivering on its promise and meeting the goals established by Congress when it adopted this seminal energy policy."

Read the full ISU study here: http://bit.ly/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

(AG/BE)


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