Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...

X. Agricultural Sector Economic Impacts
As described in more detail in the Draft Regulatory Impact Analysis
accompanying this proposal, we plan to evaluate the economic impact on the agricultural
sector. However, due to the timing of that analysis, it will not be completed until the
final rule. In the mean time, we briefly describe here (and in more detail in the draft
RIA) our planned analyses and the sources of assumptions which could critically impact
those assessments. Finally, we ask for specific comment on the best sources of
information we use in these analyses.
We will be using the Forest and Agricultural Sector Optimization Model
(“FASOM”) developed over the past 30 years by Bruce McCarl, Texas A&M University
and others. This is a constrained optimization model which seeks to allocate resources
and production to maximize producer plus consumer surpluses. We have consulted with
a range of experts both within EPA as well as at our sister agencies, the U.S. Departments
of Agriculture and Energy and they support the use of this model for assessing the
economic impacts on the agricultural sector of various renewable fuel pathways
evaluated in this rule. The objective of this modeling assessment is to predict the
economic impacts that will directly result from the expanded use of farm products for
transportation fuel production. We anticipate that the growing demand for corn for
ethanol production in particular but also soybeans and other agricultural crops such as
rapeseed and other oil seeds for biodiesel production will increase the production of these
feedstocks and impact farm income. The additional corn to produce ethanol may come
from several sources, including (1) more intensive cultivation of existing land that
currently produce corn, (2) switching production from soybean and cotton to corn, (3)
additional acres of land being cultivated, or (4) diversion from corn exports. The
implications to U.S. net exports and environment effects partially depend on which
source supplies more corn. Eventually various cellulose sources such as corn stover and
switchgrass for cellulose-based ethanol production may well become highly demanded
and also significantly impact the agricultural sector.
Using the FASOM model, we will estimate the direct impact on farm income
resulting from higher demand for corn and soybeans, for example. Additionally, we will
estimate impacts on farm employment. Since we expect the higher demand for feedstock
will increase both the supply and cost of feedstock, we will also consider how the higher
renewable fuel feedstock cost impacts the cost of other agricultural products (corn and
soy meal are important sources not only for directly making food for human consumption
but also as feed for farm animals). As an estimate of the impact on corn and soybeans
prices, we are relying on the estimates provided by the U.S. Department of Agriculture 104
rather than using the FASOM model to derive these price impacts. Additionally, we will
rely on the Energy Information Agency’s estimates for fuel mix in predicting the amount
of ethanol and biodiesel in the fuel pool. Other than these external constraints, we expect
to use FASOM as the basic model for estimating economic impacts on farm sector and
104 “USDA Agricultural Baseline Projections to 2015”
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