Friday, September 14, 2007

EIA Analysis Of 25% RPS & 25% RFS By 2025

Sep 11: The Energy Information Administration (EIA) released a report entitled, Energy and Economic Impacts of Implementing Both a 25-Percent RPS and a 25-Percent RFS by 2025. The report responds to a request by Senator James Inhofe (R-OK) for analysis of a “25-by-25" proposal that combines a requirement that a 25-percent share of electricity sales be produced from renewable sources by 2025 with a requirement that a 25-percent share of liquid transportation fuel sales also be derived from renewable sources by 2025. The electricity requirement is implemented as a renewable portfolio standard (RPS), while the motor fuel standard is implemented as a renewable fuel standard (RFS). The report provides a summary of the impacts of the Policy on U.S. energy markets and the economy through 2030.

The RPS establishes a market for renewable energy credits, which will be created by the generation of electricity from qualified renewable generators (e.g., wind, geothermal, biomass, and solar). Electricity retailers must hold RPS credits in proportion to the amount of electricity they sell. Electricity providers can generate their own renewable electricity or trade renewable electricity credits to assure compliance. Similarly, the RFS establishes a market for renewable fuel credits, based on the amount of ethanol or other biofuels sold for motor transportation. Transportation fuel providers must hold RFS credits in proportion to the amount of motor transportation fuels they sell.

The study compares a Policy Case incorporating the 25-by-25 proposal to an updated version of the Reference Case from the Energy Information Administration’s (EIA’s) Annual Energy Outlook 2007 (AEO2007). Revisions to the Reference Case for this analysis included: expiration of existing ethanol tax credits and tariffs as currently scheduled by law; updates to supply curves for domestic biomass and corn resources; inclusion of offshore wind technology; and updates of the potential for ethanol imports from Brazil.

Among other things the analysis says that, to comply with the twin 25-by-25 mandates, it will be necessary for electricity and motor fuel producers to dramatically increase their use of technologies that play a relatively small role in today’s energy markets. For example, the amount of qualifying renewable generation needed to comply with the RPS would require almost a 13-fold increase in nonhydropower renewable generation from 2005 levels by 2025. Similarly, the amount of ethanol and biodiesel needed to comply with the RFS would require more than a 12-fold increase from 2005 levels.

Big changes in the energy system, especially when implemented quickly, come with numerous uncertainties, the impacts of which may not be fully captured in this study. For example, compliance with the twin 25-by-25 mandates would require successful development and rapid deployment of new technologies, such as biomass gasification power plants and cellulosic ethanol plants, that currently are not commercially available. Policy case results are very sensitive to assumptions made regarding the cost and availability of key technologies. Even current technologies, such as wind power, engender significant uncertainties. Once the most economical wind resources are utilized, less attractive resources would have to be developed, with costs that are not well understood.

While a strong push for renewable energy technologies could lead to significant reductions in their costs through breakthroughs or learning, it is also possible that costly hurdles -- such as resistance to the siting of new plants, higher than expected transmission interconnection costs, and fuel supply limits -- could arise, limiting the development and deployment of renewable energy technologies, and making the proposed mandates much more disruptive and possibly unattainable.

The large increases in bioenergy resources, including corn and other energy crops, that would be needed to comply with the 25-percent RPS and RFS requirements could have significant impacts on agricultural markets and put upward pressure on food and feed prices worldwide. While very rapid improvements in crop yields could limit such pressures, there is considerable uncertainty about the potential for and timing of such improvements. The RFS would also require rapid market penetration of Flex Fuel Vehicles (FFVs) and development of the infrastructure needed to deliver E85 and biodiesel to consumers.

Implementation of the proposed RFS policy is likely to involve a major realignment of current capital investment plans and strategies for refiners, automotive manufacturers, and others. For example, substantial capital investment would be needed to put the E85 infrastructure in place to meet the requirements under the RFS policy.
The results of this analysis also suggest that the 25-percent requirement for renewable motor fuel use would significantly increase the use of corn in ethanol production, leading to sharply higher corn prices, substantial changes in domestic feed practices, and large cuts in or elimination of corn exports. The uncertainties inherent in implementing this policy suggest that, while not impossible, it would be very challenging and carry substantial risk.

Access links to the complete study or individual sections (
click here). [*Energy]