TY  - JOUR
AU  - Holland,Stephen P.
AU  - Knittel,Christopher R.
AU  - Hughes,Jonathan E.
TI  - Greenhouse Gas Reductions under Low Carbon Fuel Standards?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13266
PY  - 2007
Y2  - July 2007
UR  - http://www.nber.org/papers/w13266
L1  - http://www.nber.org/papers/w13266.pdf
N1  - Author contact info:
Stephen P. Holland
Bryan School of Business and Economics
University of North Carolina, Greensboro
P.O. Box 26165
Greensboro, NC 27402-6165
Tel: 336/334-4925
Fax: 336/334-4089
E-Mail: sphollan@uncg.edu

Christopher R. Knittel
University of California, Davis
Department of Economics
One Shields Ave
Davis, CA 95616
Tel: 530/752-3344
Fax: 530/752-9382
E-Mail: crknittel@ucdavis.edu

Jonathan E.. Hughes
Institute of Transportation Studies
UC Davis
One Shields Ave
Davis, CA 95616
E-Mail: jehughes@ucdavis.edu
AB  - A low carbon fuel standard (LCFS) seeks to reduce greenhouse gas emissions by limiting a fuel producer's carbon emissions per unit of output.  California has launched an LCFS for transportation fuels; others have called for a national LCFS. We show that this policy decreases production of high-carbon fuels but increases production of low-carbon fuels. The net effect of this may be an increase in carbon emissions.  The LCFS cannot be first best, and the best LCFS may reduce social welfare. We simulate the outcomes of a national LCFS, focusing on gasoline and ethanol as the high- and low-carbon fuels. For a broad range of parameters, we find that the LCFS is unlikely to increase CO2 emissions. However,  the surplus losses from the LCFS are likely to be quite large ($80 to $760 billion annually for a national LCFS reducing carbon intensities by 10 percent), energy prices are likely to increase, and the average carbon cost ($307 to $2,272 per ton of CO2 for the same LCFS) can be much larger than damage estimates. We describe an efficient policy that achieves the same emissions reduction at a much lower surplus cost ($16 to $290 billion) and much lower average carbon cost ($60 to $868 per ton of CO2).
ER  -