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.


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