The Market-Mediated Effects of Low Carbon Fuel Policies

This article analyzes the domestic and global rebound effects of a carbon price policy, the existing Renewable Fuels Standard (RFS), and a proposed national Low Carbon Fuel Standard (LCFS) and examines implications for the greenhouse gas (GHG) mitigation benefits of these policies. This study shows that unlike a carbon price policy, the RFS generates positive domestic and global rebound effects, while the rebound effects under the LCFS may be positive or negative depending on the stringency of the LCFS target. The numerical simulation shows that a 10% LCFS generates a smaller positive rebound effect than the RFS, and that the rebound effect has a larger potential to offset the direct GHG savings resulting from the displacement of fossil fuels achieved by these policies compared to the indirect-land-use change effect. Nevertheless, all three policies reduce GHG emissions relative to a no-policy, business-as-usual scenario, with the RFS leading to a lower reduction in GHG emissions than the LCFS and the carbon tax