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Abstract
Regulatory agencies are planning to implement policies targeted at mitigating
greenhouse gas emissions (GHG)—e.g., low carbon fuel standards and carbon trading.
Biofuels are viewed as a path to achieve these goals. Biofuels, however, pose challenges
to regulators because their GHG emissions are site-specific (there are regional
differences, as well as technical differences) and uncertain. In this article, we propose
methodological improvements to existing methods that yield better estimates for biofuel
GHG emissions, and reduce uncertainty. We propose to break the net emissions caused
by a regulated site, such as an oil refinery, into two parts: direct and indirect emissions.
Direct emissions arise both at and away from the final regulated site, but are directly
attributable to the final output. Indirect emissions, on the other hand, are comprised of
emissions not traceable to a single entity, but which can be computed from aggregate
supply and demand, e.g., indirect land use change (ILUC) emissions due to agricultural
expansion. The sum of the site-specific direct emissions and the average indirect
emissions is, then, compared to the standard, which is constructed given uncertainty.
Such a framework can be implemented in practice given existing data and yet allows
flexibility given heterogeneity and uncertainty.