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The Expanding Role of Renewable Fuel Policy as a Demand Driver in Agriculture

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  • Cortney Cowley

Abstract

Energy policies that promote shifts toward renewable fuels have important implications for the agricultural sector. Policies in the Inflation Reduction Act (IRA) in particular are likely to increase connections between the U.S. row crop sector and the energy industry. The IRA, which Congress passed in August 2022, created policies to help further transition the U.S. economy away from hydrocarbons and toward more domestic renewable fuel production. Previous shifts in renewable fuel policy, such as the implementation of the Renewal Fuel Standard (RFS) in 2006, may help shed light on the IRA’s potential effects. For example, prices for corn became more correlated with energy prices after the RFS due in part to a dramatic shift in demand for corn as an energy input. Cortney Cowley examines the RFS as a case study for the potential effects of policy-led renewable energy transitions such as the IRA. She finds that following the implementation of the RFS, the broader transition in the U.S. economy from conventional motor fuels to more renewable biofuels increased demand for and production of corn in the U.S. agricultural industry and likely contributed to higher but more volatile prices for crop producers. Outcomes from the RFS suggest that increased linkages between the crop and energy sector may boost farm income on balance but lead to more income variation and uncertainty for crop producers.

Suggested Citation

  • Cortney Cowley, 2024. "The Expanding Role of Renewable Fuel Policy as a Demand Driver in Agriculture," Economic Review, Federal Reserve Bank of Kansas City, vol. 0(no. 6), pages 1-16, July.
    • Handle: RePEc:fip:fedker:98541
    DOI: 10.18651/ER/v109n6Cowley
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    References listed on IDEAS

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    1. Gruber, Joseph W. & Vigfusson, Robert J., 2018. "Interest Rates And The Volatility And Correlation Of Commodity Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 22(3), pages 600-619, April.
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