Harvard economist slams rules for renewable fuels, lays out plan for reforming them

Source: Colin Sullivan, E&E reporter • Posted: Monday, April 20, 2015

U.S. renewable fuels policy has meant additional costs for drivers without the rapid transformation to second-generation low-carbon fuels envisioned by federal legislation passed last decade, economist James Stock argues in a new report.

Stock, formerly of the president’s Council on Economic Advisers and now a Harvard University economist, mostly blames a 10 percent ethanol limit in gasoline — the so-called E10 blend wall — for the failure and urges U.S. EPA to expand its renewable fuel content.

Stock acknowledged that the volume of renewable fuels pumped in the United States more than doubled between 2007 and 2013 following the passage of the Energy Independence and Security Act in 2007. But he does not believe that law has lived up to its twin climate change and energy security goals.

The economist argued that the current first-generation biofuels mainly use food crops as feedstock and are either expensive or bring only modest greenhouse gas emissions improvements. He also believes development of second-generation fuels has “fallen short of the very ambitious goals laid out in the EISA.”

Stock added that another solution after expanding the blend wall might be to reduce prices for compliance permits within the renewable fuels standard (RFS) system by keeping mandated volumes away from the blend wall.

The gist of his arguments is that Congress or EPA needs to provide more certainty for reducing costs that arise from the blend wall. He also cautions that cheap gasoline prices are bound to drive up demand and use, and therefore add to greenhouse gas emissions.

“The goals of these reforms are to increase policy certainty, to promote the sales of higher blends, to reduce [RFS permit] price volatility, and to increase the economic efficiency of the RFS,” Stock wrote, calling the RFS an important tool that needs a few tweaks to succeed.

The kinds of higher ethanol blends Stock would like consumed more widely include E85, which he hopes would provide more of a bridge to other renewable transportation fuels. He added that the debate over the RFS is nearing a “critical point” and appears bound for an overhaul.

The report was completed for the Columbia University Center on Global Energy Policy.