Making Regulatory Innovation Keep Pace with Technological Innovation

Abstract

Recent world events are forcing us to reconsider the ways in which the energy needs of the United States can and should be met. In regards to renewable energy options in general, the public response to the nuclear crisis at Japan’s Fukushima Daiichi power plant will likely stymie President Barack Obama’s call for an increase in our reliance on nuclear energy. Additionally, the increasing political unrest in the Middle East and North Africa is once again reminding us that solutions must be found to mitigate our heavy reliance on foreign-produced oil. Newly emerging liquid biofuelsnot only hold the promise of enhancing U.S. energy se urity in a sustainable fashion, but also provide the potential to mitigate climatechanging greenhouse gas emissions and serve as a driver for economic development. Nevertheless, significant regulatory hurdles to their successful commercialization do exist.

In this Article, we provide a thorough normative analysis of the two main regulatory schemes incentivizing and governing the commercialization of biofuel-related technological innovations. We urge that regulatory innovation is needed to keep pace with these technological innovations and, in doing so, we build upon the established principles that regulatory burdens should not outweigh the harms they are intended to mitigate, and that regulatory innovation is often called for to efficiently capture the social value of regulated activities. Next, we apply these insights via a detailed case study that focuses on biobutanol, an emerging biofuel with the potential to act as a socially optimal alternative to petroleum-based transportation fuels. This biobutanol case study describes and elaborates not only on the effects of the federal Renewable Fuel Standard, but also on the lawful blending limits imposed by the Clean Air Act’s regulatory framework for the commercialization of new fuels and fuel additives. After analyzing these frameworks, we provide suggestions for distinct ways in which different forms of regulatory innovation will help mitigate unjustified regulatory hurdles to the commercialization of biofuel-based technological innovations and allow us to capture more efficiently their inherent social value. Our analysis and prescriptions also find resonance in the context of other newly emerging fuels and bioenergy developments.

Keywords: renewable energy, biofuels, innovation, biobutanol