Economic and Environmental Impacts of Washington State Biofuel Policy Alternatives

By McCullough, Michael; Holland, David et al. | Journal of Agricultural and Resource Economics, December 2011 | Go to article overview

Economic and Environmental Impacts of Washington State Biofuel Policy Alternatives


McCullough, Michael, Holland, David, Painter, Kathleen, Stodick, Leroy, Yoder, Jonathan, Journal of Agricultural and Resource Economics


A computable general equilibrium model is used to analyze the effectiveness of policy alternatives at achieving biofuel-related goals in Washington State. Policy regimes compared include blend mandates, generally funded volumetric and CO2e (CO2 equivalent) emissions-based tax/subsidy regimes, and revenue-neutral funded tax/subsidy regimes that use fossil fuel taxes to fund renewable fuel subsidies. Results suggest that a revenue-neutral CO2e emissions-based tax/subsidy is arguably the most effective single alternative for pursuing the full set of objectives emphasized in recent Washington State legislation.

Key words: biodiesel, biofuel policy, computable general equilibrium, CO2 equivalent emissions

(ProQuest: ... denotes formulae omitted.)

Introduction

Washington State biofuel policies operate within the context of a substantial set of national biofuel policies and a myriad of state-level policies. The Federal Energy Policy Act of 2005 and The Energy Security and Independence Act of 2007 together mandate that consumption of biofuels increase from 13.2 billion gallons in 2012 to 36 billion gallons by 2022. The corn ethanol contribution to the renewable fuel standard (RFS) is capped at 15 billion gallons per year beginning in 2015, with the remainder being advanced biofuels, such as biomass-based fuels. In the 2008 Farm Bill (H.R. 2419: Food, Conservation, and Energy Act of 2008), tax credits for corn-based ethanol are reduced from 51 cents to 45 cents per gallon (section 15331), while a new tax credit for cellulosic biofuels is established at $1.01 per gallon (section 15321).

To date, the State of Washington biofuel policy includes minor tax incentives for biofuel sales, limited funding for infrastructure development, and a modest RFS that was intended to promote renewable fuel use, but in practice is nonbinding. Although the Washington State RFS target has been reached for ethanol sales, the biodiesel sales target has not been met. Given foreseeable market conditions, agricultural biofuel feedstocks- including oilseeds, sugar beets, and field corn-are likely to account for only a small fraction of Washington's agricultural production and state fuel needs. Washington State does not yet commercially produce any ethanol, though there has been some production in neighboring Oregon. Ethanol processors in Oregon currently import the majority of their corn feedstocks from the Midwest; biodiesel processors in Washington State do the same with Midwest soybeans and canola oil grown in the Pacific Northwest and Canada. Current production of standard biofuel feedstocks in Washington is small, but as federal mandates move away from corn ethanol toward biomass-based biofuel targets, Washington and other Western states with higher densities of woody biomass may see their position improve relative to the Midwest.

TheWashington State Governor and Legislature have continued to pursue further biofuel-related legislation. They have focused on five policy goals relating to biofuel markets: 1) increasing in-state production of biofuels, 2) increasing in-state production of biofuel feedstocks, 3) reducing petroleum dependence, 4) reducing carbon emissions, and 5) fostering environmental sustainability.1

For this study we use a Computable General Equilibrium (CGE) model to analyze the effectiveness of policy alternatives for achieving these five goals in Washington State.2 Given the speculative nature of cellulosic biofuel processing technology and the fact that there are no such markets in Washington State, we focus our analysis on the biodiesel industry in the state.3 A CGE framework is used to make relative comparisons of different policies.We used the IMPLAN (Impact Analysis for Planning) 2006 database for the state of Washington as well as additional detail for sectors related to biofuel production (IMPLAN R , 2010). The model was updated to mid-2008 to account for significant changes in the energy sector during this time period (see table 1). …

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