Lessons Learned from US Experience with Biofuels: Comparing the Hype with the Evidence

Madhu Khanna, Deepak Rajagopal and David Zilberman

Review of Environmental Economics and Policy, 2021, vol. 15, issue 1, 67 - 86

Abstract: Biofuel production in the United States, primarily from corn, has more than doubled since 2007, leading to concerns about its unintended consequences for agricultural and fuel markets. To examine the validity of these concerns and inform the debate about biofuels and their impacts, we review ex ante projections and ex post evidence of the effects of biofuels on land use, food and fuel prices, and greenhouse gas (GHG) emissions. We find that biofuels expansion contributed to an initial significant increase in agricultural commodity prices, but these impacts have dissipated over time as crop productivity has increased and cropping patterns have changed. Simulated estimates of indirect land use change and the related GHG emissions intensity of biofuels have also declined sharply from their early levels, which is consistent with ex post evidence. Additionally, growth in biofuel production caused a very modest reduction in fossil fuel prices, implying a small fuel rebound effect. Overall, estimates imply that first-generation biofuels from corn have a lower carbon intensity than gasoline. Finally, learning by doing, economies of scale, and technological improvements have made biofuels from corn increasingly competitive, reducing the need for subsidies and import tariffs. We conclude with a discussion of the lessons learned from the US biofuels experience.

Date: 2021
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