Posted: December 11th, 2014
Economics – Renewable Fuel
write a review, evaluation, and suggestions of the renewable fuel
standard. Directions included in file “Economics4”. All the other
files are handouts provided to assist.
Review and evaluate the performance of (critique) the renewable fuel
standard during the first ‘renewable biofuel’ phase that has relied on
expanding corn-based ethanol processing.
The review should introduce readers to the motivation, program
characteristics, and experience with the program. The review should
emphasize points that allow you to explain the benefits and
shortcomings of the policy later (straw man concept). In particular,
your review could discuss:
– the contribution of biofuels to greenhouse gas (CO2) reduction
– the determination of ethanol demand and the market for quota-right
(RIN) certificates under a tradable permit system with a demand quota
on (two) refiners, and the effect of a quota increase on ethanol
demand and certificate pricing
– the effect of a decade of steady quota expansions on the corn market
(price)
– unforeseen events with a big effect on markets that are related to
biofuels markets
The RFS demand quantity required for use by refiners by year is:
Year RFS quantity (billion gallons)
2004 2.2
2005 2.7
2006 3.9
2007 4.5
2008 9.0
2009 10.5
2010 12.0
2011 12.6
2012 13.2
2013 13.8
2014 14.4
2015 15.0
The evaluation options include keeping the program in more or less its
current form, modifying the program to avoid incidental problems that
have occurred thus far, replacing the policy with another (possibly
more efficient) policy, or eliminating the program for a free market.
You can choose any one of these courses of action – your answer on
this part will be judged on the strength of your economic and
technical arguments. You should mention that course of action you
propose in your introduction. Then explain the details and argue for
your idea towards the end of the paper.
A graph showing US corn yields is included for your perusal. Include
any appropriate supply and demand diagrams.
Carbon Dioxide (CO2 ) removals (+) and emissoins (-)
associated with with ethanol and gasolineconsumption, in lbs CO2 /
gallon
Alternative I: burn ethanol
Alternative II:burn gasoline
net: alternative I – alternative II
corn credit 19.76 soybean credit
10.85 1 8.91
ethanol gasoline
consumption -14.72 consumption
-19.63 4.91
processing -1.64 refinery
-3.8 2.16
natural gas -8.55
-8.55
0
fertilizer N2O -1.25
-1.25
Land Use Change (LUC) -10.85
total 6.18
(oppportunity cost calculation)
Total: -17.25 -23.43
-26.4 percent reduction in CO2 emissione
with ethanol -26.4
percent
according to EPA
(opportunity cost calculation)
1 included in LUC for EPA calculation, but included with
alternative II for opportunity cost calculation
Alternative Calculation Procedures and associated Controversies:
1 Instead of my cattle/DG procedure, assume that DG replaces soy
meal with little change in net emissions (adopted by EPA)
2 Instead of my domestic corn replace domestic soybeans, assume
that Brazil cuts down rain forest and plants soybeans.
3 Instead of my gasoline gallon for ethanol gallon substitution,
use heat content substitution rates.
Implicitly, I assume that ethanol is a small
share, or a redesigned engine can get the same fuel economy
4 Some think that N2O fertilizer emission is much larger, due to
fertilizer runoff int streams and rivers.
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