Analysis of Social Costs and Benefits of Advanced Biofuels and Other Low Carbon Fuels

Focus Area

Climate Change


Air Quality, Environmental Process




Over $750k



Research Idea Scope

Problem Statement
Policy interest in low carbon fuel standards (LCFS) as a means of reducing GHG emissions is growing rapidly. California Governor Arnold Schwarzenegger signed an executive order on January 18, 2007 that initiated a low carbon fuel standard to reduce the carbon intensity of fuels for light-duty vehicles. The standard limits the life cycle weighted average carbon intensity of transportation fuel. Several bills that would establish a similar national LCFS were introduced in the 110th Congress. None were adopted, and one was discussed on the Senate floor. In the 111th Congress, an LCFS was in the original draft of the Waxman-Markey bill, but removed from the version that passed the House. The American Clean Energy and Security Act may include a national LCFS.
There is an urgent need for an objective, scientific analysis of the social costs and benefits of the advanced biofuels and other low carbon fuels that would be required under a national LCFS.
This project will conduct a comprehensive social benefit and cost analysis of a national low carbon fuel standard (LCFS) by:
·      Reviewing previous related efforts from the University of California, the University of Minnesota, and others
·      Consulting several proposed guidelines for benefit and cost analysis, including the OMB’s guidelines
·      Developing an economic model that permits the prediction of private and social costs and benefits of LCFS. The model should distinguish between tangible and intangible elements. An example of a tangible component of private cost would be the incremental increase in the cost of producing fuel. An example of an intangible component of private cost to the consumer would be any loss of vehicle performance associated with the LCFS. The social costs and benefits should include quantifiable market and non-market impacts.
·      Developing an accounting framework that delineates the appropriate dimensions and boundaries of the social costs to be considered. Such a framework should capture impact disparities and equity concerns among affected stakeholders.
·      Measuring and normalizing incremental costs in terms of appropriate functional units (e.g. $/tonne GHG avoided, $/Btu, etc.) to facilitate comparison of fuel alternatives. Additionally, total (non-normalized) costs should be estimated to assess overall impacts to affected stakeholders.
·      Identifying several scenarios for a national LCFS along a number of dimensions;
·      Establishing the baseline for the analysis, including, if appropriate, GHG and CAFE standards under the EPA and NHTSA joint rulemaking and the Renewable Fuels Standards 2.
·      Conducting a comprehensive sensitivity analysis for the parameters in the model, consulting experts and establishing 90 or 95 percent ranges of plausibility.
·      Establish GHG benefits of LCFS implementation by 2050 and beyond.
Related Work
Stephen P. Holland, Jonathan E. Hughes, and Christopher R. Knittel, Greenhouse Gas Reductions under Low Carbon Fuel Standards? American Economic Journal: Economic Policy 2009, 1:1, 106–146
Alexander E. Farrell, Daniel Sperling, A.R. Brandt, A. Eggert, B.K. Haya, J. Hughes, B.M. Jenkins, A.D. Jones, D.M. Kammen, C.R. Knittel, M.W. Melaina, M. O’Hare, R.J. Plevin, A Low-Carbon Fuel Standard for California Part 2: Policy Analysis, University of California, August 1, 2007
Brent D. Yacobucci, A Low Carbon Fuel Standard: State and Federal Legislation and Regulations, Congressional Research Service, December 2008.
Jason Hill, Erik Nelson, David Tilman, Stephen Polasky, and Douglas Tiffany, Environmental, economic, and energetic costs and benefits of biodiesel and ethanol biofuels, University of Minnesota, June 2, 2006
Monetary Valuation Per Dollar of Investment in Different Performance Measures, NCHRP 8-36-61, National Cooperative Highway Research Program. Accessed April 13, 2009.
Urgency/PriorityThe proposed research will contribute to the current debate on a national LCFS.

Urgency and Payoff

The desired project outcome is a final report of social costs and benefits. Social costs and benefits should include quantifiable market and non-market impacts. A detailed explanation of the model, all assumptions and data files used, and a detailed discussion of the sensitivity analysis—identifying the parameters with such uncertainty that they would change the results.
This research will refine our understanding of the social costs and benefits of a national LCFS and provide guidance for policy.

Suggested By

RNS. Sponsoring Committee: A0020T, Special Task Force on Climate Change and Energy Source Info: Special Task Force on Climate Change and Energy January 2010 Workshop