In 2007, the Washington State Legislature passed legislation “relating to providing for the means to encourage the use of cleaner energy.” The final of four chapters of the renewable energy act directed Washington State University to explore the development of biofuels in Washington. The final result, Biofuel Economics and Policy for Washington State, released in late 2008, does not quite match what some state policy makers had expected, notes lead author Jon Yoder, a natural resource economist at WSU.

In short, the report recommends that Washington not try to force itself into the current biofuel market. With what are considered “first-generation” biofuels, such as ethanol, the state simply cannot compete with midwestern corn-growing states. As much as anything, this is due to Washington’s agricultural strengths.

“The interesting thing about Washington,” says Yoder, “is it’s very good at growing high-value agricultural crops.” In fact, it does have a high-value ethanol product, wine grapes. As ridiculous as turning cabernet grapes into biofuel sounds, it reflects a broader reality, says Yoder. In the current market, energy crops in Washington would simply be losers.

If there’s one important take-home message of the report, it’s that it’s important not to think about biofuels in isolation, a prevailing problem in earlier analysis and policy, says Yoder. “I think we’ve done something with this report that hasn’t been done yet, anywhere,” he says. “It puts a broad perspective on biofuel policy from the ground up.”

Nothing in the report, which involved the analysis of 15 authors and economists, is new, says Yoder. But the combination is.
The economists were asked by the legislature to do three basic things. First was to assess the availability of biofuel feedstock in the state. Second was to develop recommendations for market incentives. Finally, they were to provide recommendations for research and development.

The legislature had three fundamental goals: promote state production of biofuels, reduce petroleum dependence, and reduce greenhouse gas emissions.

In response, says Yoder, the group recommended the following: Policy should revolve around a carbon-based fuel tax (on carbon emission, not fuel volume), based on life-cycle carbon emissions of fuel. Also, incentives should be provided that promote low carbon renewable fuels, something that is missing today in policy.

The result, say the economists, is we now have corn-based ethanol that provides little benefit in terms of greenhouse gas emissions.
“What we concluded,” says Yoder, is that “in order to meet the goals laid out in the legislation, a focus on greenhouse emissions reduction would be the umbrella under which we could approach all of the goals laid out in the legislation.

“Until now, including now, biofuel policy has been developed in a great deal of isolation from a lot of other policies. It’s time to start integrating biofuels policy into broader climate and energy policies.”

The report makes specific recommendations that run counter to prevailing policy sentiment including a recommendation against straight cap and trade in carbon.

The WSU report also recommends that the state instead institute a carbon-based tax on fuels. Revenues could be used in several ways. First, to provide tax credits. Revenues would also be used to provide research and development funds for promising technologies for developing the next generation of biofuels, as well as geographically appropriate technologies.

“The reason why it’s important to tax first and use revenues,” says Yoder, “…suppose we take revenues from the general fund to offset tax credits for subsidies. What you do is make blended fuel cheaper and increase consumption, and petroleum dependence remains the same.”

Even though Yoder believes such an approach could be revenue neutral, in the short run, he admits, it would be a tough call.

The economists acknowledge that the state will probably adopt a cap and trade policy in spite of their recommendations. In deference to this momentum, they suggest the state should be aggressive toward auctioning the initial credits, instead of just giving them away.

Pending legislation is calling for 10 percent of credits to be auctioned. “In my book, that’s not enough,” says Yoder.

Perhaps more significant is the report’s recommendation that the state plan for the long run, investing in research, development, and infrastructure, with particular attention paid to rail infrastructure for transporting the feedstock.

Biofuel Economics and Policy for Washington State will be published as an agricultural research center bulletin.