Publication Detail
Greenhouse Gas Reductions under Low Carbon Fuel Standards?
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UCD-ITS-RR-08-01 January 2008 Research Report Download PDF
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Suggested Citation:
Holland, Stephen P., Christopher R. Knittel, Jonathan E. Hughes (2008) Greenhouse Gas Reductions under Low Carbon Fuel Standards?. Institute of Transportation Studies, University of California, Davis, Research Report UCD-ITS-RR-08-01
A low carbon fuel standard (LCFS) seeks to reduce greenhouse gas emissions by capping an
industry’s carbon emissions per unit of output. California has launched an LCFS for automotive
fuels; others have called for a national LCFS. We show that this policy causes production of
high-carbon fuels to decrease but production of low-carbon fuels to increase. The net effect of
this may be an increase in carbon emissions. The LCFS may also reduce welfare, and the best
LCFS may be no LCFS. 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
quite large ($80 to $760 billion annually for a national LCFS reducing carbon intensities by 10
percent), 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 propose 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).
industry’s carbon emissions per unit of output. California has launched an LCFS for automotive
fuels; others have called for a national LCFS. We show that this policy causes production of
high-carbon fuels to decrease but production of low-carbon fuels to increase. The net effect of
this may be an increase in carbon emissions. The LCFS may also reduce welfare, and the best
LCFS may be no LCFS. 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
quite large ($80 to $760 billion annually for a national LCFS reducing carbon intensities by 10
percent), 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 propose 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).