Ethanol production in the United States: The roles of policy, price, and demand
Assessments of the impact of the U.S. renewable fuel standard (RFS) should inform consideration of future biofuels policy. Conventional wisdom suggests the RFS played a major role in stimulating the ten-fold expansion in ethanol production and consumption in the United States from 2002 to 2019, but evidence increasingly suggests the RFS might have had a smaller effect than previously assumed. Price competitiveness, other federal and state policies such as reformulated gasoline requirements, and octane content in ethanol also affect ethanol market attractiveness and thus market volume. This study explores the roles of policy and economic factors by comparing historical data with results from scenarios simulated in a system dynamics model. Results suggest price competitiveness explains much of the growth in the ethanol industry from 2002 to 2019: ethanol’s price was often competitive as both a volume extender and an octane source for gasoline markets. The VEETC and MTBE phase-out contributed to earlier growth relative to expected timing of growth based on fuel price alone. The RFS (modeled through observed Renewable Identification Numbers) contributed to increased ethanol production in later years and may have increased production in the earlier years if risk of investment was decreased. Future work may endogenize the RIN markets which would greatly improve the model’s ability to estimate the effect of the RFS absent other factors.