Concerns about energy security, reduced dependence on exhaustible fossil fuels, and climate change have led to significant policy support for biofuels, particularly for cellulosic biofuels. The Biomass Crop Assistance Program (BCAP) and volumetric tax credits for biofuels seek to supplement the Renewable Fuel Standard (RFS) and provide incentives for producing and blending cellulosic biofuels. This Article examines the effects of these policies on the mix of biofuels produced, food and fuel prices, and consumption and greenhouse gas (GHG) emissions as compared to the RFS alone. It also examines the effects of two performance-based policies that target incentives based on the GHG intensity of fuels. This Article finds that the BCAP and volumetric tax credits together lead to biofuel production that exceeds the minimum required by the RFS by 26% and to a significant transition away from corn ethanol and toward cellulosic biofuels. They also reduce GHG emissions by 3% and gasoline consumption by 100 billion liters relative to the level with the RFS alone. These subsidy policies are costly for the government and for the economy, however, imposing a welfare cost of $122 billion over the 2007–2022 period. Replacing these payments by subsidies based on carbon credits generated by a feedstock relative to gasoline, though less costly, does not create significant incentives to change the mix of biofuels beyond the levels mandated by the RFS. In contrast to these subsidy policies, supplementing the RFS with a $30 per metric ton of carbon dioxide equivalent emissions carbon price instrument is found to achieve the 3% reduction in GHG emissions with a gain in social welfare and lower costs to the government relative to the RFS alone.
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