The Cost of Renewable Fuel Incentives: A Two-Part Policy Analysis Series

Authors

Philip Rossetti

Resident Senior Fellow, Energy

Nan Swift

Resident Fellow, Governance Program

Read the Series

Part I: The Consumer Costs and Climate Impacts of the RFS

Part II: How the RFS Has Damaged the Environment and Burdened Taxpayers

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The renewable fuel standard (RFS)—a federal mandate requiring ethanol and other (mostly corn-based) biofuels to be blended into the U.S. fuel supply—was originally introduced in 2005 and expanded in 2007 to promote energy security and reduce greenhouse gas (GHG) emissions. Two decades have passed since the RFS was enacted, giving us ample opportunity to evaluate its effectiveness in achieving these objectives.

This two-part policy series details the steep costs of the RFS, showing that it not only drives up fuel costs but also causes environmental harms that require costly taxpayer-funded mitigation.

Despite these costs, there is no sign that the RFS will be modified anytime soon. In fact, Congress is contemplating expanding biofuel subsidies and mandates through support for sustainable aviation fuel (SAF). Such policies, though, should be formed based on the evidence in support of their effectiveness, or lack thereof.

These two analyses show how American consumers, taxpayers, and ecosystems have all paid greatly to accommodate RFS mandates—without clear evidence of meaningful benefit.

Part 1 evaluates the direct costs of the RFS’ conventional biofuel mandate to U.S. fuel consumers. It finds that the mandate has raised energy expenditures while delivering uncertain—and potentially negative—GHG emissions outcomes. Despite optimistic federal assumptions, our modeling shows that, even under the most generous assumptions of emission abatement, the RFS is a highly inefficient climate policy—costing more than $1,400 per ton of carbon dioxide reduced.

Part 2 examines the downstream impacts of the RFS on water quality and taxpayer spending. It documents how the policy has driven an overproduction of corn, resulting in increased fertilizer runoff and widespread harmful algal blooms in the Great Lakes and Gulf of Mexico. These ecological disruptions have cost communities billions in water treatment upgrades, lost tourism, and environmental remediation.

Together, these studies make a compelling case for rethinking federal support for corn-based biofuels. As lawmakers consider policies like the SAF and Clean Fuels Tax Credit, they should avoid repeating the RFS’s mistakes and, instead, take steps to correct them.