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Sunday, February 7, 2010

Selected Issues Related to an Expansion of the Renewable Fuel Standard (RFS)

Randy Schnepf 
Specialist in Agricultural Policy 

Brent D. Yacobucci
Specialist in Energy and Environmental Policy

Biofuels have grown significantly in the past few years as a component of U.S. motor fuel supply. Current U.S. biofuels supply relies primarily on ethanol produced from Midwest corn. Today, ethanol is blended in more than half of all U.S. gasoline (at the 10% level or lower in most cases). Federal policy has played a key role in the emergence of the U.S. biofuels industry in general, and the corn ethanol industry in particular. U.S. biofuels production is supported by federal and state policies that include minimum usage requirements, blending and production tax credits, an import tariff to limit importation of foreign-produced ethanol, loans and loan guarantees to facilitate the development of biofuels production and distribution infrastructure, and research grants. 

Congress first established a Renewable Fuel Standard (RFS)—a mandatory minimum volume of biofuels to be used in the national transportation fuel supply—with the enactment of the Energy Policy Act of 2005 (EPAct, P.L. 109-58). This initial RFS mandated that a minimum of 4 billion gallons be used in 2006, and that this minimum usage volume rise to 7.5 billion gallons by 2012. Two years later, the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140) superseded and greatly expanded the biofuels blending mandate. EISA required the annual use of 9 billion gallons of biofuels in 2008 and expanded the mandate to 36 billion gallons annually in 2022, of which only 15 billion gallons can be ethanol from corn starch. The remaining 21 billion gallons are to be so-called "advanced biofuels"—that is, biofuels produced from feedstocks other than corn starch, including sugarcane, oil crops, and cellulose. 

In the long term, the expanded RFS is likely to play a dominant role in the development of the U.S. biofuels sector, but with considerable uncertainty regarding potential spillover effects in other markets and on other important policy goals. Emerging resource constraints related to the rapid expansion of U.S. corn ethanol production have provoked questions about the sustainability of continued growth in biofuels production and about possible unintended consequences, including potential market and environmental effects of a major shift in U.S. agricultural land use patterns, increased energy demand to grow feedstocks and process them into liquid fuel, and nearterm barriers to developing the infrastructure needed to deliver increasing volumes of biofuels to the market. 

Questions also exist about the ability of the U.S. biofuels industry to meet the expanding mandate for biofuels from non-corn sources such as cellulosic biomass materials (e.g., grasses, trees, and agricultural and municipal wastes). Although cellulosic feedstock sources appear promising, technological barriers make them very expensive to produce relative to conventional ethanol and keep their future uncertain. Another important biofuel, biodiesel, is produced from soybeans and other oil crops, but also remains expensive to produce owing to the relatively high prices of its feedstocks. 

Key policy questions are whether a renewable fuel mandate is the most effective policy to promote the above goals, if government intervention in the industry is appropriate, and, if so, what level is appropriate. 

This report describes the nature of the RFS mandate, its implementation, and some emerging issues regarding the long-term growth of the U.S. biofuels sector. 

Date of Report: January 28, 2010
Number of Pages: 25
Order Number: R40155
Price: $29.95

Document available electronically as a pdf file or in paper form.
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