While the broad objective of significantly increasing renewable-energy use in motor fuels and electricity appears to be technically achievable, our findings indicate that the resulting impact on consumer energy expenditures is quite uncertain. The wide range of potential expenditure impacts reflects several significant uncertainties with respect to the future availability and cost of renewable energy sources.
Holding expenditure impacts to a modest level requires a number of concurrent significant advances in renewable-energy technologies. Of these, advances in low-cost biomass feedstock provision and improvements in the economic efficiency of conversion rank at the top of the list. While further improvements in wind technology also are very important, as is improved energy efficiency, biomass plays a central role in expanding both renewable electricity and renewable fuels.
Given this finding, a large, inexpensive, and easily converted biomass supply is necessary for significantly increased renewable-energy use to have relatively low impact on consumer energy expenditures. The significant resulting increase in biomass usage would require harvesting various energy crops at a scale that vastly exceeds current practice. Without significant advances in biomass production from marginal lands, greatly increased biomass production could be accompanied by adverse environmental and economic impacts due to land conversion. There is also the possibility that land-use changes engendered by higher reliance on biomass could result in a temporary increase in GHG emissions. Technical advances in the provision of economically and environmentally sound feedstock should be a top priority for R&D programs focused on increasing biomass-based energy supplies.
A renewable-fuel requirement reduces demand for petroleum and lowers the international price of crude oil. This oil price impact from fuel diversification can be seen as enhancing energy security through increased competition with petroleum-exporting countries in a position to exercise market power. While this is a clear economic benefit from increased use of renewables, in itself, it is not likely to be the most cost-effective option, since improvements in energy efficiency and development of other substitute sources also can exert downward pressure on oil prices. Moreover, energy security depends on how vulnerable an economy is to oil price shocks as well as on the level of oil prices. Substitution of relatively costly renewable fuels for fossil-based alternatives at a 25 percent level may do relatively little to mitigate the risk of oil price shocks. In competitive wholesale and retail markets for fuel, the prices of the alternatives will be highly correlated with the price of oil-based petroleum products.
Our analysis also indicated that increasing to 25 percent the share of renewables can significantly reduce CO2 emissions. However, the incremental increase in energy cost per unit of CO2 reduction varies widely depending on circumstances, reaching very high levels unless