How sensitive is the biofuel production mix to these policy factors and to technology changes?
We find that the current ethanol mandates that require 15 billion gallons by 2012, of which 0.5 billion are from cellulosic feedstocks, will actually increase total fuel use while reducing GHG emissions on the order of 2 percent and increasing nitrogen fertilizer use by 15 percent. Coupling the current subsidies with those mandates will have almost no effect on the environmental outcomes while providing large transfer payments to producers. However, using a carbon tax (or any policy that puts a price on carbon) in lieu of subsidies would reduce total fuel use while also reducing GHG emissions and limiting the increase in nitrogen. These conclusions are valid when there is no technology change in the cellulosic ethanol sector. However, as cellulosic ethanol production becomes more cost-competitive, cellulosic ethanol could take more market share to meet the ethanol mandates, which would have larger benefits in terms of GHG emissions and nitrogen use. Appropriate assumptions on reasonabl
