The fuel market effects of biofuel policies and implications for regulations based on lifecycle emissions

The absence of a globally-consistent and binding commitment to reducing greenhouse emissions provides a rationale for partial policies, such as renewable energy mandates, product emission standards, etc to target lifecycle emissions of the regulated products or services. While appealing in principle, regulation of lifecycle emissions presents several practical challenges. Using biofuels as an illustrative example, we highlight some outstanding issues in the design and implementation of life cycle-based policies and discuss potential remedies. We review the literature on emissions due to price effects in fuel markets, which are akin to emissions due to indirect land use change, but are, unlike the latter, ignored under all current life cycle emissions-based regulations. We distinguish the current approaches to regulating indirect emissions into hard and soft approaches and discuss their implications.