Unintended Consequences of Transportation Carbon Policies: Land-Use, Emissions, and Innovation

55 Pages Posted: 16 Nov 2013 Last revised: 26 May 2014

See all articles by Stephen P. Holland

Stephen P. Holland

University of California, Berkeley - Energy Institute; University of North Carolina (UNC) at Greensboro - Bryan School of Business & Economics

Jonathan E. Hughes

University of Colorado at Boulder - Department of Economics

Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Nathan C. Parker

University of California, Davis

Date Written: November 2013

Abstract

Renewable fuel standards, low carbon fuel standards, and ethanol subsidies are popular policies to incentivize ethanol production and reduce emissions from transportation. Compared to carbon trading, these policies lead to large shifts in agricultural activity and unexpected social costs. We simulate the 2022 Federal Renewable Fuel Standard (RFS) and find that energy crop production increases by 39 million acres. Land- use costs from erosion and habitat loss are between $277 and $693 million. A low carbon fuel standard (LCFS) and ethanol subsidies have similar effects while costs under an equivalent cap and trade (CAT) system are essentially zero. In addition, the alternatives to CAT magnify errors in assigning emissions rates to fuels and can over or under-incentivize innovation. These results highlight the potential negative efficiency effects of the RFS, LCFS and subsidies, effects that would be less severe under a CAT policy.

Suggested Citation

Holland, Stephen P. and Hughes, Jonathan E. and Knittel, Christopher R. and Parker, Nathan C., Unintended Consequences of Transportation Carbon Policies: Land-Use, Emissions, and Innovation (November 2013). NBER Working Paper No. w19636. Available at SSRN: https://ssrn.com/abstract=2355642

Stephen P. Holland (Contact Author)

University of California, Berkeley - Energy Institute ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

University of North Carolina (UNC) at Greensboro - Bryan School of Business & Economics ( email )

401 Bryan Building
Greensboro, NC 27402-6179
United States

Jonathan E. Hughes

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States

Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nathan C. Parker

University of California, Davis ( email )

One Shields Avenue
Davis, CA 95616
United States

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