Analysis of US Renewable Fuels Policies Using a Modified MARKAL Model*

This paper evaluates the impacts of alternative renewable fuels policies using a bottom-up energy technology model, MARKAL, enhanced with data generated from a global general equilibrium model, GTAP. MARKAL does not do a good job of handling biofuels because the cost of producing biofuels depends where one is on the land supply curve, and MARKAL contains no land data or parameters. Agricultural land data from GTAP was added to MARKAL by agro-ecological zone. GTAP was then simulated in increments of one billion gallons of corn ethanol up to 20 billion gallons. The land rent values obtained from these simulations were used to produce land supply curves for MARKAL thereby permitting MARKAL to reliably simulate biofuels development in the context of other energy technologies. The main results are as follows: Little or no biofuels would be produced in the absence of the RFS and all subsidies. Some corn ethanol would be produced without RFS or subsidies, but less than current production. No cellulosic biofuels would be produced without government incentives. Production of cellulosic ethanol is not attractive even under the volumetric subsidy regime. The subsidy costs vary widely depending on the subsidy used and whether or not the coal/biomass thermochemical technology is enabled. Coal combined thermochemical pathway with biomass is cheaper than biomass alone. The subsidy costs and costs of the RFS also vary depending on what is happening with development of other energy technologies. Quantification of this effect is possible only with a bottom-up energy model like MARKAL