Why Sustainability Standards for Biofuel Production Make Little Economic Sense

Cato Policy Analysis Series, No. 647

12 Pages Posted: 30 Jan 2010

See all articles by David R. Just

David R. Just

Cornell University - Dyson School of Applied Economics and Management

Harry de Gorter

Cornell University - School of Applied Economics and Management

Date Written: October 7, 2009

Abstract

The federal "sustainability standard" requires ethanol to emit at least 20 percent less carbon dioxide (CO2) than gasoline. Recent rulings by California and the Environmental Protection Agency, however, have cast doubt on the methodology of the sustainability calculus and whether those standards are being met. We show that the methodological debate is misplaced because sustainability standards for ethanol are, by definition, illogical and ineffective. Moreover, those standards divert attention from the contradictions and inefficiencies of ethanol import tariffs, tax credits, mandates, and subsidies, all of which exist whether ethanol is sustainable or not.

Ethanol is sustainable by definition. The CO2 sequestered by growing corn is exactly offset by the CO2 emissions that follow from burning the fuel in a car. The same observation applies to, say, consuming bourbon made from corn, but ethanol can replace energy - bourbon cannot. Hence, any sustainability standard should be applied to all corn and other crop products, and not just ethanol.

Sustainability standards are based on "life-cycle accounting," in which ethanol is assumed to replace gasoline; but in fact, it may be replacing coal or other energy sources. Life-cycle accounting also fails to recognize that if incentives are given for ethanol producers to use relatively "clean" inputs (e.g., natural gas), the "dirtier" inputs (e.g., coal) that might otherwise have been used for the ethanol production will simply be used by other producers to make products that are not covered by the sustainability standard. Sustainability standards reshuffle who is using what inputs - with no net reduction in national emissions.

Finally, sustainability standards are discriminatory under World Trade Organization law and are unlikely to survive a legal challenge from ethanol producers abroad. The United States will not be able to rely on the World Trade Organization's exception for trade laws protecting the environment because of lax U.S. policies dealing with greenhouse gas emissions relative to its trading partners. Moreover, the imposition of U.S. tariffs on more climate-friendly ethanol produced abroad weakens any U.S. defense of ethanol sustainability standards under the WTO.

Suggested Citation

Just, David R. and de Gorter, Harry, Why Sustainability Standards for Biofuel Production Make Little Economic Sense (October 7, 2009). Cato Policy Analysis Series, No. 647, Available at SSRN: https://ssrn.com/abstract=1543933 or http://dx.doi.org/10.2139/ssrn.1543933

David R. Just

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States
607-255-2086 (Phone)
607-255-9984 (Fax)

Harry De Gorter (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States
607-255-8076 (Phone)

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