Impact of US Biofuel Policy in the Presence of Uncertain Climate Conditions

We analyze the impact of total and partial waivers of the US Renewable Fuel Standard (RFS) under uncertain changes in climate conditions that affects crop yield distributions. Results show that reducing RFS would make world agricultural consumers better off, and increase the US corn share in the world market while slightly decreasing agricultural commodity prices. However, the higher the RFS reduction the higher the uncertainty on the price changes. On the other hand, price changes would make ethanol and agricultural producers face losses as well as increase gasoline consumption and, therefore, bring larger environmental damages. Overall, RFS reduction generates negative changes in total economic surplus, specifically, small and medium RFS reductions generate changes in the socio-economic variables; however, large reductions do not bring further changes, although uncertainty in welfare results is higher under an increased reduction.