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WSU Economists Say Long-term, Targeted Approach Best for Biofuel Market Development

PULLMAN, Wash. – The state of Washington is well positioned to develop biofuel markets, but only if it begins now to take a long-term, targeted approach focused on advanced biofuels and potential biomass sources, according to a team of economists in the Washington State University School of Economic Sciences.

“Our analysis suggests that Washington has relatively strong long-run potential in biofuels, but weak short-run prospects,” writes a team led by economics Professor Jonathan Yoder, in a report recently delivered to Washington lawmakers. “However, this does not suggest waiting to put policies in place. In fact, Washington has the opportunity to ‘get ahead of the curve’ by adopting balanced and carefully targeted polices now to better position the state for biofuel markets of the future.”

In April 2007, the Washington State Legislature directed WSU to examine and analyze the economics of biofuel and feedstock markets in the state, and to recommend incentives for developing the state’s biofuels markets in a way that benefits the state’s economy, reduces petroleum dependence and reduces greenhouse gas emissions. Specifically, faculty members looked at: market conditions for Washington biofuels and feedstocks; market incentives; research, new technology adoption and infrastructure; and biofuels in evolving energy markets.

In terms of traditional biofuels feedstocks, Yoder and team found that direct incentives to promote crops such as corn, sugar beets and canola “are not likely to be cost effective.”

“State policy to induce competitiveness and the provision of significant quantities of fuel and fuel crops in today’s markets would likely come at significant cost to either biofuel consumers or the taxpayers of Washington,” according to the report.

Rather, the team recommends that if the state wishes to implement public policies to promote biofuel markets, it should focus primarily on fostering markets to use existing biomass such as forest and logging residues, municipal solid waste and agricultural residues. “Indeed, Washington ranks fourth among 19 western states (after California, Texas and Oregon) for estimated available biomass,” they said. “Biomass-based fuels may, within a well-designed policy environment, be able to supply energy with reduced net carbon emissions, and compete less with food crops for agricultural land.”

One fundamental component of their recommendations is for the state to consider implementing a tax on carbon emissions, which would be progressively higher the greater the life cycle green house gas emissions from fuel production and consumption. Revenue from the tax could be used to create a “renewable fuels fund” that would be available to fund tax credits for fuels with low carbon emissions and to fund research and development for this market, without relying on general tax funds.

“A greenhouse gas based approach may appear at first to be a climate change policy rather than a biofuels policy,” Yoder and team writes. “However, our analysis shows that the most streamlined and direct way to approach all of the goals noted in our enabling legislation given Washington State’s comparative advantages is through a policy linked to greenhouse gas emissions.”

Such an approach has its drawbacks, however, according to Yoder. “Measurement of life-cycle carbon emissions from fuel is difficult and currently controversial,” he said. “The research team argues, however, that careful design of carbon-based policies can help to spur improvements in emission measurement protocols in order to better support the adoption of low-carbon renewable fuels.”

The full report is posted at http://www.ses.wsu.edu/research/EnergyEcon.htm.

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Media Contacts

Jonathan Yoder, School of Economic Sciences, yoder@wsu.edu