A national laboratory of the U.S. Department of Energy

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National Renewable Energy Laboratory 

Innovation for Our Energy Future 

Understanding and Informing the 

Policy Environment: State-Level 

Renewable Fuels Standards 

E. Brown, K. Cory, and D. Arent

Technical Report 

NREL/TP-640-41075 

January 2007 

NREL is operated by Midwest Research Institute ● Battelle Contract No. DE-AC36-99-GO10337 
Understanding and Informing the 

Policy Environment: State-Level 

Renewable Fuels Standards 

E. Brown, K. Cory, and D. Arent

Prepared under Task No(s). IGST.6500 and 6001.5010 

Technical Report 

NREL/TP-640-41075 

January 2007 

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Table of Contents 

Acknowledgments......................................................................................................................... v

Abstract.......................................................................................................................................... 1

Introduction................................................................................................................................... 1

What is an RFS?............................................................................................................................ 1

Status of State-Level RFS in the United States.......................................................................... 2

Trends in State-Level Policy Development................................................................................. 6

Policy Drivers ............................................................................................................................. 6 

Stakeholder Participation............................................................................................................ 7 

Market Applicability................................................................................................................... 8 

Policy Flexibility......................................................................................................................... 9 

Binding Targets and Compliance.............................................................................................. 10 

Mandate Setting ........................................................................................................................ 11 

Fuel-Quality Standard Setting................................................................................................... 12 

Cost Caps.................................................................................................................................. 12 

Summary of Current State Policy Trends................................................................................ 13

Lessons to Inform State Policy: National and International RFS Policies............................ 13

Biofuels as Part of Comprehensive Energy Plan. ..................................................................... 16 

Target Flexibility ...................................................................................................................... 16 

Fuel Flexibility.......................................................................................................................... 16 

Binding Targets......................................................................................................................... 16 

Public/Private Partnerships ....................................................................................................... 17 

Summary of National and International RFS Lessons............................................................ 17

Lessons to Inform State Policy: Internationals and State Renewable Portfolio Standards 

(RPS) ............................................................................................................................................ 18

Binding Targets......................................................................................................................... 18 

State-Supported Backing/Long-Term Financing...................................................................... 18 

Tradable Permits....................................................................................................................... 18 

Cost Caps.................................................................................................................................. 19 

Interaction with Other Policies/Programs................................................................................. 19 

Summary of Lessons from International and State RPS ........................................................ 20

Conclusion: Informing Current and Future State RFS Policies............................................ 20

Appendix: U.S. States with RFS Policy Action (December 2006) .......................................... 22

Colorado.................................................................................................................................... 22 

Hawaii....................................................................................................................................... 22 

Iowa........................................................................................................................................... 23 

Louisiana................................................................................................................................... 23 

Minnesota.................................................................................................................................. 24 

Missouri .................................................................................................................................... 24 

Montana .................................................................................................................................... 25 

Washington ............................................................................................................................... 25 

Summary of Proposed RFS Policies (December 2006)............................................................ 25

California .................................................................................................................................. 25 

Colorado.................................................................................................................................... 25 

 iii
Delaware ................................................................................................................................... 26 

Georgia – State Vehicle Requirement....................................................................................... 26 

Idaho ......................................................................................................................................... 26 

Illinois....................................................................................................................................... 26 

Kansas....................................................................................................................................... 27 

Michigan (Information provided via Kaplun 2006).................................................................. 27 

Nebraska ................................................................................................................................... 27 

New Mexico.............................................................................................................................. 27 

Oregon....................................................................................................................................... 27 

Tennessee – State Vehicle Requirement................................................................................... 28 

Wisconsin.................................................................................................................................. 28 

Summary of Other State RFS Activity (December 2006) ....................................................... 28

Indiana....................................................................................................................................... 28 

Michigan ................................................................................................................................... 28 

North Dakota............................................................................................................................. 29 

Oregon....................................................................................................................................... 29 

South Dakota............................................................................................................................. 29 

Virginia ..................................................................................................................................... 29 

 iv
 

Acknowledgments 

This report is made possible by the many contributions of state policymakers and legislative 

assistants, who pulled together information and dusted off dead legislation for the authors, as 

well as the NREL librarians, who also assisted in gathering data. Data was also gathered and 

critical input provided by Samantha Slater and Julia Davies (Renewable Fuels Association). An 

indispensable resource throughout the development of this paper, although not specifically cited 

in any one place, is the Alternative Fuels Data Center (http://www.eere.energy.gov/afdc/), which 

tracks alternative fuels technologies and the policies that surround them. The authors would also 

like to thank Jerry Kotas and Dan Beckley (Department of Energy - DOE); John Brown, Ron 

Benioff, David Hurlbut, John Sheehan, Robert Wallace, Victoria Putsche, and Roya Stanley 

(NREL); Rebecca White (U.S. Environmental Protection Agency - EPA); Russ Hendricks (Idaho 

Farm Bureau Federation); and Josh Zahn (National Biodiesel Board), for their thoughtful review 

of drafts of this report. This report would not have been possible without support from Dan 

Beckley and Jerry Kotas at DOE, as well as Bobi Garrett at NREL. Our thanks also go to 

Michelle Kubik for her editing support. 

 v
Abstract 

Renewable fuels standard (RFS) policies are becoming a popular public policy mechanism for 

developing the market for renewable fuels in the transportation sector. During the past decade, 

U.S. states and several countries began implementing these more market-based (less command 

and control) policies to support increased biofuels production and use. This paper presents an 

overview of current and proposed U.S. state-level policies, as well as selected electric sector 

policies and international fuel standard policies. Current U.S. state-level renewable fuel policies 

list drivers including an improved economy and environment, as well as fuel self-sufficiency. 

Best practices and experience from an evaluation of renewable portfolio standards (RPS) in the 

United States and international RFS policies can inform U.S. state-level policy by illustrating the 

importance of policy flexibility, binding targets, effective cost caps, and tradable permits. 

Understanding and building on the experiences from these previous policies can improve the 

policy mechanism and further develop a market for renewable fuels to meet the goals of 

improved economy, environment, and fuel self-sufficiency. 

Introduction 

While there are many policy mechanisms for promoting growth in renewable energy markets 

(e.g., prescriptive fuel-type mechanisms, tariffs, straight financial incentives), renewable fuels 

standard (RFS) policies are becoming the prevalent public policy mechanism for developing the 

market for renewable fuels in the transportation sector. This market-based policy mechanism, 

when ideally designed and executed, provides opportunity for the development of renewable 

fuels markets through the correction of market failures by empowering the market actors to 

develop least-cost solutions for fulfilling the mandate. Market failures specific to renewable fuels 

markets include embedded fossil fuel infrastructure and culture, increased risk in renewable fuel 

development, consumer information gaps, and lack of quantification of non-economic benefits of 

renewable energy. RFS policies are an increasingly popular mechanism for addressing these 

failures in the United States and around the world. 

Prior to 2006, two U.S. states and several countries implemented these market-based policies. In 

2006, the U.S. federal government began implementation of a national-level RFS, and eight 

more states enacted RFS policies to promote economic growth, reduce dependence on foreign 

oil, and reduce the transportation sector impact on the environment. Seventeen more states have 

recently considered legislation. The increase in renewable fuel policy activity captures the 

interest in promoting renewable fuels, but also allows for constructive comparison of approaches 

and possible impacts for the state, nation, and industry. This review presents summaries of select 

national-scale RFS policies (including the United States), as well as international and state 

renewable portfolio standard policies (in the electric sector), which are provided to inform 

current and developing state-level RFS policy debate. This analysis offers comparative 

information to help inform policy development of a competitive, economically efficient 

renewable fuels market. 

What is an RFS? 

Renewable fuels standard (RFS) policies require that a certain percentage of transportation fuel 

provided to a given geographic area is replaced by renewable fuels. Implementation of the 

requirement has been based on volume or total fuel sales, and may be further targeted toward the 

replacement of gasoline or diesel fuels, or even to specific grades of gasoline. The mechanism 

 1
may be applicable to a variety of locations along the supply chain (e.g., refiners, blenders, 

importers, distributors, and/or retail sellers). Depending on how it is enacted, the flexibility of the 

policy mechanism could allow for developing least-cost solutions for renewable fuel markets 

while promoting continued innovation in the development of cost-effective renewable fuels. 

The term “renewable fuels standard” originates from a similar policy mechanism used to develop 

the market for renewable energy use in the electric sector. These policies, called renewable 

portfolio standards (RPS), are now in place in 231

 states and the District of Columbia. Evaluation 

of the RPS programs show that the policies have resulted in at least 4,000 MW of increased 

renewable electricity capacity at the state level (UCS 2006a, EIA AEO 2006). Lessons learned 

from extensive analysis of and research on RPS policies is discussed in a later section of the 

paper. 

Status of State-Level RFS in the U.S. 

Figure 1 illustrates the geographic distribution of states “with” and those “considering” policies. 

Ten states have RFS policies in place, as shown in Table 1. At least another 17 states are 

examining or are considering implementing their own RFS policies, shown in Table 2 and 

detailed in the Appendix.

2

 The number of states considering this mechanism indicates that 

critical review is needed to ensure that the policies developed meet the goals of state legislation. 

Table 3 summarizes policies in place by state, goal, and date of expected compliance. The 

following sections describe the trends in drivers and policy development approaches for the 

states with active policies. The Appendix lists policy details for these in-place policies, as well 

as those proposed in recent state legislative sessions. 

 

1

 Includes states with voluntary RPS-type policies 

2

 The list of states considering RFS or RFS-type policies is based on best available information, but may be missing 

some states where little or no published information regarding consideration is accessible. Further, this review 

focuses on legislative policies and does not include an extensive review of gubernatorial executive orders. 

 2
Table 1. Summary of States With RFS 

(as of December 2006) 

Table 2. Summary of States Considering 

RFS (as of December 2006) 

State Status State Status 

Colorado* Enacted 2006 

Hawaii Enacted 1994, 

California Proposed 

 Revised 2004, 2006 Colorado Proposed 

Iowa Enacted 2006 Delaware Proposed 

Louisiana Enacted 2006 Georgia* Proposed 

Maryland* Enacted 2006 Idaho Proposed 

Minnesota Enacted 1991, Illinois Proposed 

 Revised 2006 Indiana Interest 

Missouri Enacted 2006 Kansas Proposed 

Montana Enacted 2006 Michigan Proposed, further interest 

Washington Enacted 2006 Nebraska Proposed 

Ohio* Enacted 2006 New Mexico Proposed 

* indicates state vehicle fuel use only policy North Dakota Interest 

Oregon Proposed, further interest 

South Dakota Interest 

Tennessee* Proposed 

Virginia Interest 

Wisconsin Proposed 

* indicates state vehicle fuel use only policy 

 3

.
Policy in Place 

State Vehicle Only Policy in Place Policy Under Development/Consideration State Vehicle Only Policy Under Development/Consideration 

Figure 1. Map of U.S. States “With” and “Considering” RFS Policies (December 2006) 

 4
 5

Table 3. Summary of Enacted RFS Policies (December 2006)State Requirement Date oColorado All state-owned diesel vehicles and equipment to be fueled with B20. Policy is negated if the 

blend of 20% biodiesel/80% diesel by volume (B20) is $0.10 more per gallon than the price of conventional diesel. 

2007 

Hawaii At least 85% of gasoline sold must contain 10% ethanol by volume (E10). 2008 Iowa Equivalent of 25% of all gasoline sales must come from renewable sources [either 10% or 

85% ethanol blends (E10, E85), or biofuel that is 1% biodiesel by volume (B1) at a minimum]. 

2020 

Louisiana Total motor gasoline sales must contain 2% ethanol by volume (E2). 

Total diesel sales must contain 2% biodiesel by volume (B2). 

2015 oproducethano

Maryland Half the state fleet normally powered by diesel must be using a blend of at least B5. 2008 Minnesota Total motor gasoline sales must contain 20% ethanol by volume (E20). 

Total diesel sales must contain 2% biodiesel by volume (B2). 

2013 

Missouri Total non-premium motor gasoline sales must contain 10% ethanol by volume (E10). 2008 Montana Total non-premium motor gasoline sales must contain 10% ethanol by volume (E10). 3 mon

producmgy 

Ohio For state vehicles owned or leased, shall use at least 60,000 gallons of E85 per year by 

January 1, 2007, with an increase of 5,000 gallons per year after that; and at least 1 million gallons of biodiesel per year by January 1, 2007, with an increase of 100,000 gallons per year each year. 

2007 a

Washington Total motor gasoline sales must contain 2% ethanol by volume (E2). 

Equivalent of 2% of diesel sales must be biodiesel. 

2008 

*Million gallons per year. Policy summaries are taken directly from state legislation where available (Blunt 2006, Colorado 2006, Hawaii Revised Louisiana 2006, Michigan 2006a, Minnesota 2005, Missouri 2006, Ohio 2006, Washington 2006) and from published suRFA 2006). Full citations available in reference section. 
Trends in State-Level Policy Development 

Renewable fuel policy is still in the early stages of development. However, as more policies have 

been enacted, several policy trends have emerged. There is a general uniformity in the 

legislatively stated drivers behind enacting such policies, but states have developed different 

approaches to policy development, including the variety of stakeholders included in planning, the 

definition of the market to which the mandate applies, specific renewable fuel type requirements, 

binding targets and enforcement provisions, the actual standards set by the mandate (in terms of 

the amount of renewable fuel), the potential impacts of meeting the policy’s goals, and triggers 

for when the requirement will begin, based on supply development. 

Policy Drivers 

There are five primary drivers cited in legislation as the motivations for RFS creation. Table 4

summarizes these primary drivers for the RFS policies in place, as of the end of 2006.3

 All states 

indicated the basis for the law was to build a renewable fuels market. One driver is the expected 

positive impact on the rural economy through creating a new market for rural products. Both 

Louisiana and Washington listed energy security or energy independence as a driver (Louisiana 

2006, Washington 2006). With increasing volatility in fossil fuel prices and increased global 

uncertainty associated with them, reduction of dependence on foreign oil and increasing the use 

of locally produced fuels are increasingly driving RFS policies. Finally, both Louisiana and 

Washington list environmental benefits such as improved constituency health and air quality as 

policy drivers. 

 

Table 4. Primary Drivers (as Noted in Legislation) for State Renewable Fuels 

Standard Development (Enacted Policies, as of December 2006) 

Stated Drivers 

Environmental 

State 

Improve 

Rural 

Economy 

Increase use of 

domestic fuels Improved 

Health 

Air Quality 

Hawaii X 

Iowa X X 

Louisiana X X X X 

Missouri X 

Montana X 

Ohio* X 

Washington X X 

Sources: State legislation as cited in the reference section, including Hawaii Legislature 

2006b, Iowa 2006, Louisiana 2006, Minnesota 2005, Missouri 2006, Ohio 2006, RFA 

2005b, and Washington 2006 

*Applies to state vehicles only 

The drivers for the development of RFS legislation are broad, and refinement of these may 

impact future development of policies. The data supporting the claim of air quality 

improvements of renewable fuels, for example, is extremely limited. It appears that at low 

concentrations – such as those incorporated in most current and proposed policies – tailpipe 

emissions of carbon monoxide, particulates, and most air toxic emissions will decrease, as will 

 

3

 Drivers reviewed here are those listed in the published legislation. Other, nonpublished drivers may exist for RFS 

development, but those are not reviewed in this report. 

 6
life-cycle emissions of carbon dioxide. At the same time, tailpipe emissions of nitrogen oxide 

appear to tend to remain the same or increase, and the evaporative emissions of non-methane 

hydrocarbons (a precursor to ozone), appear to increase (MO TAP 2006). Before any final 

determinations are made about air quality impacts, substantial additional testing and research are 

needed. 

In preparation for more research, several policies include triggers that expand the program if 

higher percentages of ethanol in gasoline or biodiesel are certified at a later date to have no 

adverse air quality impacts (Table 5, California 2006a, Washington 2006). Tennessee’s proposed 

state vehicle rules present an alternative option to direct renewable fuel market development. 

That policy, for the purpose of ensuring no negative impacts on air quality, allows the goals for 

petroleum-based gasoline and diesel to be met by other technologies such as more efficient 

vehicles and hybrid-electric vehicles. 

Table 5. State Provisions Requiring Air Quality Impacts 

State Provision 

California* State must certify that there are no adverse air quality impacts 

Washington 2% requirement initially, but increases to 10% if state officials 

determine that the blend will not have an adverse effect on air 

quality 

*Based on proposed legislation 

Stakeholder Participation 

Based on the potential scale and complexity of building the market for renewable fuels, states 

have leaned toward inclusion of all interested stakeholders in the policy development process. 

Similar to most public policy development, as more RFS policies are developed, the stakeholders 

with interest in participating in the process will streamline. However, the current trend for states 

is to include a large stakeholder group to incorporate the needs of a wide variety of interested 

parties and establish broad acceptance of the policy. Stakeholders included in the RFS design 

process have included representatives from: 

• State Department of Transportation 

• State Department of Energy (State Energy Office) 

• State Department of Agriculture 

• State Department of Environment 

• State Department of Economic Development 

• State Regional Planning Agencies 

• Consumer Protection Groups 

• Agriculture Groups 

• Corn Growing Trade Associations 

• State Public Utility Commissions 

• Vehicle Manufacturers 

• Consumers 

• Gas Station Owners 

• Petroleum Marketers 

 7
Because of the variety of players, the primary groups participating in the development of each 

state RFS have been the champions for such a policy in the state. In Washington, for example, 

the Department of Community, Trade and Economic Development was involved in the 

development of the RFS because they think it could be a key driver for rural economic 

development. Determining the specific market players for each of the states is critical to the 

successful development and implementation of this cross-sector policy. 

Market Applicability 

The potential market to which the RFS applies can be defined by the fuel targeted for 

replacement with renewable energy, the specific fleets to which the requirement applies, and 

whether there are any thresholds that must be met before the policy is triggered. To date, statebased RFS policies have defined specific market boundaries for the fuels and vehicles to which 

they apply. Table 6 shows that the market boundaries can include the type of fuel, the grade of 

fuel, and the specific fleets to which the RFS applies. For example, most states have (or have 

proposed) an ethanol and/or biodiesel requirement that applies to the total sales by volume of 

gasoline (for ethanol) or diesel fuel (for biodiesel) in the state. Alternatively, Missouri and 

Montana focus their efforts on all non-premium motor gasoline sales, but still require that the 

replacing fuel is ethanol. Finally, Georgia, Ohio, and Tennessee limit the market of their RFS by 

focusing proposed policies on gasoline consumed by state-owned vehicles. Because some of 

these policies are still in the development stages, it is challenging to determine whether these 

market-based differences impact the ability of the state to meet their goals, given the limited 

scope of the policy. 

Table 6. Applied RFS Market Scope for Enacted and Proposed Legislation 

RFS applies to motor 

gasoline and/or biodiesel all 

sales 

RFS applies to all nonpremium motor gasoline sales RFS applies only to state 

vehicle fuel use 

California* 

Colorado 

Delaware* 

Georgia* 

Hawaii 

Idaho* 

Illinois* 

Indiana 

Iowa 

Kansas* 

Louisiana 

Michigan 

Minnesota 

Nebraska* 

New Mexico* 

Ohio* 

Oregon 

Tennessee* 

Washington 

Wisconsin* 

Missouri 

Montana 

Colorado 

Georgia* 

Maryland 

Ohio 

Tennessee* 

*Based on proposed legislation. See Appendix for details. 

Several RFS policies enacted and proposed have included another market-based trend – they 

included a market trigger after which policy compliance must occur. This trigger is typically 

structured to be met once in-state supply production reaches a certain threshold. This type of 

provision was enacted in two states’ RFS legislation: Louisiana [2015 or six months after in-state 

production reaches 50 million gallons per year (mgy) ethanol and 10 mgy biodiesel] and 

Montana (three months after in-state production of ethanol reached 40 mgy). This type of policy 

trigger is designed to promote supply availability, so that supply will be available to meet 

demand. While neither policy explicitly states that the RFS sales mandate must be met with 

 8
locally produced fuels, there could be the potential for constitutional risks if they (or any other 

state) decides to implement the standard requiring in-state fuel (through guidance or 

regulations).4

 

Policy Flexibility 

A primary potential benefit of market-based policies is that they allow for the flexibility of 

developing a least-cost market for existing renewable fuels, while encouraging development of 

new cost-effective fuels and infrastructure. However, the existing policies primarily target only 

two specific renewable fuel types to meet the RFS: ethanol and biodiesel blends. In other words, 

they require that ethanol and/or biodiesel be used to displace gasoline or diesel and do not allow 

other fuels such as methanol, butanol, “renewable diesel,”5 compressed natural gas, hydrogen, or 

other fuels. The prescription of fuel type places a major limitation on the benefits of marketbased policies – primarily the ability of the market to determine the least-cost fuel to meet the 

policy goal as well as promote innovation of new fuels. 

The benefit to limiting the policies to specific renewable fuel types is that it minimizes 

uncertainty in meeting the goal. However, the limitation reduces the incentives for continued 

development of other innovative and cost-effective renewable fuels technologies. Without direct 

market competition among renewable fuels, there is no certainty that ethanol and biodiesel are 

the most efficient fuels for meeting the goals of increased national security and economic 

development, as well as decreasing the environmental impact of transportation fuels, the stated 

primary drivers of state level RFS policies. Further, limiting the types of fuels able to fulfill the 

requirement has the potential to stifle innovation in the development of new renewable fuels to 

meet the goals of the government. Some states have recognized this challenge and allowed for 

other alternative or renewable fuels to meet the goals of the RFS. The Louisiana statute, for 

example, allows for other alternative fuels6 to meet the fuel requirement (Louisiana 2006); and 

the proposed rules for state vehicles in Tennessee allow for expansion of fuel types to meet the 

requirement (Tennessee 2006a), possibly indicating a trend toward increased policy flexibility. 

In addition to specific fuel-type requirements, most of the enacted RFS policies explicitly require 

volumetric substitutions of gasoline or diesel across the entire market. Most require that all 

gasoline sold into the market contain a certain percentage of ethanol (e.g., 2% or 10%, typically) 

and/or that diesel fuel sold must contain a certain percentage of biodiesel (e.g., 2% typically). 

There are two exceptions to these rigid volumetric requirements. First, the Iowa RFS requires the 

equivalent amount of 25% of in-state gasoline sales will be replaced with either ethanol (either 

E85 or E10) or biodiesel (minimum of B1). Despite limited fuel choices, the policy offers some 

flexibility rather than dictating the state’s fuel mix, allowing producers and distributors to decide 

how to best meet the policy. This flexibility provides the market with the ability to decide: (1) 

which fuel works best, based on market conditions (feedstock prices, availability, performance, 

 

4

 According to the “dormant commerce clause” of the U.S. Constitution, no state can favor an in-state commodity 

over an out-of-state equivalent. Specifically, “The U.S. Supreme Court consistently strikes down as unconstitutional 

[programs] involving interstate goods taxed by states so as to provide local subsidy” (Ferry 2006). Therefore, if any 

RFS provisions limit eligibility to ethanol and biodiesel produced in-state, they could be overturned if successfully 

challenged in court. 

5

 Renewable Diesel has been distinguished from “biodiesel” both chemically and by process. For example, See 

www.petrobras.com.. 6

 As defined by EPAct 2005. 

 9
economics, etc.); (2) whether to sell higher concentrates of ethanol (E85) or biodiesel (B20 or 

B100) to a smaller percentage of their customers to meet the requirement; and/or (3) whether 

producers decide to sell the required amount of renewable fuel primarily outside of the coldest 

winter months, when there are less concerns for fuel quality.7 

The second exception is a minor adjustment: Washington State requires that an equivalent of 2% 

of diesel sales be replaced with biodiesel, rather than require that all diesel contain 2% biodiesel 

(B2). The reasoning is based on Minnesota’s experience of some B2 fuel-quality challenges in 

the winter (Green Car Congress 2006), which were mostly corrected by tightening quality 

standards and strengthening enforcement penalties on out-of-specification biodiesel. However, 

an unanticipated result is that Washington incorporated some flexibility as to how the state meets 

the requirement, though to a lesser degree than Iowa. Producers will be able to: (1) sell higher 

percentages of biofuels (e.g., B20, B100) to a smaller group of customers, and/or (2) decide what 

time of year they sell the renewable fuel. 

Binding Targets and Compliance 

Most currently enrolled RFS policies do not have detailed enforcement provisions included in 

their legislation and assign the development of regulations regarding compliance to a state 

agency. Because most policies were passed in the past year, regulations are not currently 

available, so it is difficult to estimate the extent to which enforcement will be included. Iowa 

offers relatively more detail within the legislation by allowing the state to initiate an “alternate 

civil enforcement action...for at least one hundred dollars but not more than one thousand dollars 

for each violation. Each day that a continuing violation occurs shall be considered a separate 

offense. If a party...fails to pay...the penalty...within thirty days...the state may initiate a 

criminal prosecution.” (Iowa 2006). Legislative direction regarding the repercussions of 

noncompliance to the agency responsible for developing regulations is a representation of active 

state support for the development of a market for renewable fuels. 

These compliance (and noncompliance) mechanisms send signals to market stakeholders 

regarding the importance of meeting the state obligations and goals. There is evidence within 

existing policies that enforcement of binding targets is critical to meeting program goals. For 

example, the longest running RFS – Hawaii’s 1994 law – did not contribute to the development 

of an ethanol market (the policy goal) until an enforcement policy was enacted when the 

legislation was amended in 2004 (Hawaii Revised Statutes 2006). Based on the Hawaii 

experience, as well as lessons learned by renewable portfolio standard policies (see section 

below), an enforceable policy is critical to the policy meeting its goals. 

Another trend associated with binding targets and compliance mechanisms is deciding which 

sectors of the value chain are burdened with compliance. Within currently enrolled policies, the 

trend is toward placing that burden on retail outlets for motor fuel. This is an important issue to 

monitor in policy development, because regulating individual retailers to ensure compliance may 

be both costly and logistically challenging. 

 

7

 Note that emissions considerations may preclude selling high percentages of renewable fuels during the summer in 

metropolitan areas that are in nonattainment for ozone, if the fuel would lead to an increase in ozone precursors. 

 10
Mandate Setting 

As discussed earlier, most enrolled RFS policies target the gasoline and/or diesel fuel market by 

designating a specific percentage of fuel that must be substituted using ethanol or biodiesel. In 

addition to limiting the market to prescribed fuel types – and, therefore, limiting its impact on 

building a market for least-cost renewable fuels, as discussed above – this dominant policy 

design appears to apply an initial requirement based on the level of replacement fuel that 

policymakers think can be achieved. The design, however, does not appear to be based on 

exhaustive research or analysis that examines the actual ability of the market to meet the 

requirement, nor the potential that the policy will meet the policymaker’s main drivers. 

States currently considering new RFS standards could integrate analysis within the policybuilding framework to determine the best policy for the specific state. To estimate the 

appropriate percentage of renewable fuel to which a statewide fuel portfolio could apply, the 

following analyses could be performed: 

• Determining the availability of alternative fuel; 

• Researching the potential for market penetration of alternative fuels by assessing market 

conditions (number of alternative fuel vehicles, location of alternative fuel stations, 

willingness of farming community to provide feedstock, etc.); 

• Calculating the potential impacts of the policy (e.g., air quality, oil offset, economic); and 

• Interaction of the mandate/goal with other policies and programs (e.g. federal RFS, 

nearby state RFS, infrastructure building programs). 

In the absence of extensive analysis and research, the policymakers are challenged and they set 

goals for these first renewable fuels standards. Two possible solutions exist for this challenge. 

The first is for the state to invest in a greater understanding of the balance of supply and demand 

for renewable fuels, and structure policies in reaction to the potential availability of and 

maximum demand for renewable fuels. This analytic investment will pay dividends through a 

thorough understanding of the market and potential for fuels, as well as provide better input into 

the policy and, ideally, easier implementation as a result of understanding the market. The 

drawback, however, is that analytic studies of this magnitude can be costly and time consuming, 

and policy momentum, as well as politics, may preclude these as an option. The second solution 

is to set an easily achievable goal at the start and create a flexible target within the policy 

allowing for incremental increases as the market reaches the goal. This allows for the target to be 

adjusted upward, based on the implementation experience as well as changes in the global 

market. The drawback of this solution, however, is that the initial target may be set so low that it 

does not increase investment in biofuels as quickly as intended. 

 

Another aspect of standard mandate setting is clarity of the standard. That is, the goal of the 

policy and the mechanisms for meeting it must be clear. Whether the policy indicates that the 

standard must be set on a volumetric or total sales basis, or whether it applies only to a certain 

type of fuel or market segment, are important points of clarification that ease confusion for the 

implementing parties. 

 11
Fuel-Quality Standard Setting 

Another important aspect of creating a stable market for renewable fuels within a state is 

ensuring that national-level fuel suppliers and vehicle manufacturers are working with a single 

type of fuel when producing their product. While state-level RFS policies are designed to 

promote renewable fuel use within a state, producers and vehicle manufacturers work on a much 

larger scale. A uniform quality standard for the makeup of renewable fuels is critical to these 

stakeholders for cost minimization and general market support. 

Current trends in state RFS development show that most states are working with national-level 

standards, with a preference to those quality standards issued by the U.S. EPA (Table 7). The 

federal renewable fuels standard requires the EPA to promulgate regulations on fuel-quality 

standards for ethanol and biodiesel (EPAct 2005), and that is in progress. In the meantime, many 

states are relying on the American Society for Testing and Materials (ASTM) standards for fuel 

quality, where applicable. Maintaining this trend toward uniform standards may prove to be a 

challenge if the federal quality standards are delayed beyond state implementation dates for 

ethanol or biodiesel, or if other fuels without uniform federal standards come into development. 

Table 7. Selected State-Level RFS Requirements and Quality Standard Requirements

State (yr) Requirement By Fuel Quality Standards

HI (1994)* 10% ethanol (E10) 2008 ASTM or USEPA when available 

IA (2006) 25% biofuels 

equiv.** 

2020 ASTM 

LA (2006) 2% ethanol (E2) 

2% biodiesel (B2) 

2015*** Ethanol: ASTM D4806 

Biodiesel: USEPA 

MN (1991)* 20% ethanol (E20) 2013 USEPA or ASTM Standard written into 

legislation 

MO (2006) 10% ethanol (E10) 2008 ASTM 

WA (2006) 2% ethanol (E2) 

Equiv. of 2% diesel 

2008 ASTM or EPA when Available 

ASTM = American Society for Testing and Materials 

Sources: State legislation as enrolled. 

Cost Caps 

A select number of states have incorporated caps that negate the policy if the costs to the 

consumer (or other market) is considered to be a burden. In Louisiana, the statute requires that 

the price of wholesale Louisiana-manufactured ethanol be equal to or less than an average gallon 

of regular unleaded gasoline sold in the state for 60 days before the alternative fuel requirement 

goes into effect (Louisiana 2006). The Colorado state vehicle rule includes a similar provision 

that only requires the use of biodiesel if the price is no greater than 10 cents more than regular 

diesel (Colorado 2006). 

 12
 13

Summary of Current State Policy Trends 

The current policy environment for state-level RFS policies is developing rapidly, with 10 states 

enacting policies and 17 more proposing or taking other actions. The major drivers for these 

policies, according to legislation, are to improve the economy and the environment (health and 

air quality, primarily), and increase dependence on local fuel sources. 

This review shows that although these drivers have led, in most cases, to wide-ranging 

stakeholder involvement in the policy development process and met the immediate needs of the 

drivers, current policies are still limited in terms of satisfying the drivers in the long term. 

Specifically, the policies are limited by a lack of flexibility to meet the goals with least-cost 

options. Further, most current policies also lack stringent enforcement provisions, a critical piece 

of effective binding targets. The remainder of this paper reviews selected national-level RFS 

policies, as well as use of a similar policy mechanism in the electric sector. These experiences 

can inform revisions in current RFS policies, and contribute to development of future RFS 

policies that meet the needs of the state in the long term. The final section draws conclusions 

from the collected experience with renewable fuels standards and initial best practices. 

Lessons to Inform State Policy: National and International RFS 

Policies 

Multiple RFS-type policies, called “obligations,” are being implemented internationally and 

nationally in the United States. Table 8 presents a selection of these policies, and the remainder 

of this section identifies and describes the attributes of these policies that can inform RFS policy 

development at the state level.
Table 8. Selected International RFS/Obligation Policies 

Country – Policy Brief Description DEuropean Union8- Biofuels Directive Sets target for EU-wide biofuel use of 2% by December 2005 and 5.75% by 

December 2010, and calls on member states to do the same. 

2

Canada9- Provincial Mandates Ontario has committed to 5% ethanol in fuels by January 1, 2007. 2Czech Republic10- Comprehensive 

Energy Policy

Requires that 15-16% of total energy consumption is from renewable energy by 2030. Provides financial incentives to that end. 

2

Hungary11- Government resolution 

on the use of biofuels

A target to increase biofuels in transport to 0.4-0.6% by 2005 (from 0.0%).This proportion should reach 2% by 2010. 

2

Australia12- Biofuels Action Plan The industry/government partnership target of 350 megalitres of biofuels by 

2010. 

2

Spain - Renewable Energy Plan for 2005 - 2010

Spain’s new national energy plan is designed to promote the use of renewable energy sources in Spain and reduce the emission of greenhouse gases. The Spanish government’s focus on renewable energy sources is intended to reduce Spain’s dependence on oil imports, furthering their efforts to fulfilling the Kyoto Protocol and reducing use of nuclear energy. By 2010, Spain expects 12.1% of Spain’s overall energy needs and 30.3% of total electricity consumption to be met by renewable energy sources. The Spanish government has raised its target for the production of bioethanol and biodiesel to 2.2 million tonnes of oil equivalent (toe) in 2010 from an initial 0.5 million toe. The energy industry is expected to finance 77% of the overall cost of the renewable energy plan, and other private sector industries another 20% and the government, the remainder. Tax incentives will also be offered. 

2

United States13 - National 

Renewable Fuels Standards (EPAct 2005)

Part of the 2005 revisions to the Energy Policy Act (EPAct) was an RFS requiring 4.0 billion gallons (approx. 2.78 volume percent of gasoline) sold or introduced into commerce in the continental U.S. be renewable fuel starting in 2006, increasing to 7.5 billion gallons by 2012. 

2

8 http://www.environmental-finance.com/2006/0602feb/biofuel.htm9 Australian Government Biofuels Task Force. 2005. Report of the Australian Government Biofuels Task Force to the Prime Minister. Uhttp://www.dpmc.gov.au/biofuels/report/report_full.pdf10 IEA 2006. [IEA] International Energy Agency. Johannesburg Renewable Energy Coalition Policy Database. URL: http://www.iea.org/textbase/pamsdb/detail.aspx?mode=jr&id=1570. Accessed December 2006. 11 Government resolution 2233/2004. (IX. 22.) 12 Office of the Prime Minister, Australia. 2005. News release announcing the National Biofuels Target. URL: http://www.pm.gov.au/news/media_releases/media_Release1734.html 14
United Kingdom14

Renewable Transport Fuels Obligation (RTFO) 

In November 2005, the government announced it would introduce a Renewable Transport Fuel Obligation (RTFO) – a long-term mechanism requiring transport fuel suppliers to ensure a set percentage of their sales are from a renewable source. The RTFO will be introduced in 2008-09, with the obligation level set at 5% in 2010-11.This will deliver savings of 1 MtC by 2010. Budget 2006 sets out further details on the RTFO. The level of obligation will be 2.5% in 2008-09 and 3.75% in 2009-10. This will ensure significant growth of biofuels prior to reaching the 5% level in 2010-11, while recognizing the time required to build production capacity and develop the necessary infrastructure to blend and supply the fuels. RTFO levels beyond 2010-11 will be set in due course, but the government intends that the target should increase beyond 5% after 2010-11, as long as infrastructural requirements and fuel and vehicle technical standards allow, and subject to the costs being acceptable to the consumer. 

2

Notes: a. Obligation policies in Spain, Hungary, France, Austria, Slovenia, and those planned in the UK, Germany, the Czech Repcan be applied to the EU nonbinding directive. b. Information in this table, while sourced to original country-level data and legislation where possible, can be found in summInternational Energy Agency-hosted Johannesburg Renewable Energy Coalition Database of International Policies Regardhttp://www.iea.org/textbase/pamsdb/jrlist.aspx?by=techno 1513 EPAct 2005 14 UK Department for Transport. 2006. Renewable Transport Fuel Obligation Web site. URL: http://www.dft.gov.uk/stellent/groups/dft_roads/documents/divisionhomepage/610328.hcsp
Although the majority of these RFS policies are too recent to evaluate, there are aspects of the 

policies and their development that can inform U.S. state RFS policies: 

Biofuels as Part of Comprehensive Energy Plan 

In Spain and the United States, the renewable fuel obligation is part of an overarching energy 

plan for all sectors. In Spain, the plan also includes detailed information on the expectation of 

financing for the projects, as well as the role of public funding. This type of policy measure may 

result in greater stakeholder success and a better chance at effective policy implementation, 

because it presents a holistic view of energy policy and, in some cases, recognizes the 

importance of supporting new facility financing. 

Target Flexibility 

The Spanish plan also explicitly allows for a revision to the initial targets, if needed, as a result 

of changes in the market, including activities of other countries, fuel prices, and demand. 

Because of the rapid development of the market for biofuels in the current marketplace, it is 

challenging for states and countries to project where supply and demand will be in the future. 

The ability to update goals within a policy (as described in the trends section above) increases 

program uncertainty to the investment community, and that should be carefully balanced against 

the costs of initial investment in market analysis and renewable fuel potential. 

Fuel Flexibility 

While the Spanish plan and many others are limited to biodiesel and bioethanol, the UK 

program, scheduled to begin in 2008, allows for any renewable fuel to meet the goal. Both 

programs can apply results to the EU directive, which also focuses on bioethanol and biodiesel, 

but it also asks member states to consider options for research and development of alternative 

biofuels. EU member states have responded to this in different ways, from the UK approach of 

complete fuel flexibility, to the Hungarian approach to set the target for biofuels for bioethanol 

and biodiesel, but to create a biofuel program researching alternative fuel sources.15 In Australia, 

the RFS calls for any renewable fuels. In the United States, the RFS is directed toward the 

ethanol market, with instruction to the implementing agency (Environmental Protection Agency) 

to include cellulosic ethanol beyond 2012. While this provides incentive for innovation in the 

ethanol market, it does not provide for the development of a true, market based, renewable fuels 

standard as it does not promote cross-fuel competition and least cost compliance. Increased 

flexibility in policy compliance increases the opportunity for economically efficient competition 

in the renewable fuels market. 

Binding Targets 

While many of the countries represented here have established targets and not binding goals, 

there is evidence of pressure on governments, especially the European Union, to make targets 

binding. At least twice in 2006, once by Eurofores, a European environmental group and once by 

 

15Hungarian Government. 2003. Report of the Republic of Hungary to the EU Commission on the Promotion of the 

Use of Biofuels for Transport. URL: http://www.ebbeu.org/legis/Hungary%201st%20report%20Dir%202003%2030_EN.pdf

 16
eBIO,16 the European Bioethanol Trade Association,17 the EU has been called on to reduce 

uncertainty in the investment market by making the targets mandatory for member states. While 

binding targets and penalty provisions have been suggested to be stronger policies, countries 

with very little or no infrastructure, such as Hungary, suggest in their literature that the targets 

are a first step for nurturing a new industry in the country.18

The U.S. and UK policies include a schedule for gradually increasing the requirement, allowing 

for the growth of renewable fuel capacity over time. This inclusion in a policy can keep market 

growth, especially in the presence of major incentives, at a sustainable pace. Also, it allows for 

certainty in the development of biofuel capacity, as well as contributes to periodic evaluation and 

revision of the program. 

Public/Private Partnerships 

The Australian public/private partnership was established through the 2005 Biofuels Action Plan 

released by the Prime Minister in 2005 (Australian Government Biofuels Task Force 2005). The 

partnership includes a multimillion-dollar government investment in a grant program to develop 

new biofuel production capacity and reduce infrastructure barriers, and strengthen the 

commitment of the public sector to use E10 in all fleet vehicles. Further, the government has 

agreed to revise fuel specifications to promote research and development into other biofuels. The 

private sector, in response, has offered public support of ethanol and simplified labeling 

procedures to better educate and inform consumers. While limiting in the majority of its scope to 

already developed fuels, the inclusion of a public/private partnership to promote and study 

renewable fuels presents a model that has the potential for longer-term impact on the market, as a 

result of increased stakeholder networking and buy-in to the policy. A precursor to this explicit 

public/private partnership may exist in many of the EU directive-related policies, especially 

those that include not only a target but also a program to support research, development, and/or 

deployment (including infrastructure) of biofuels. 

Summary of National and International RFS Lessons 

In summary, this selection of federal-level policies shows that, despite the differing scale of the 

policies, the challenges remain similar. Nationally and internationally, solutions to the challenges 

related to fuel flexibility and the creation of binding targets and penalty provisions are just now 

being developed. Innovative policy structures, such as Australia’s pairing of a requirement with a 

public/private partnership in which all parties have a vested interest, may be highly effective. 

Time and further development of policies will determine what policy structures are the most 

effective. In the meantime, U.S. states can benefit from understanding the evolution of these 

policies and the international market for biofuels, and build on the process already begun at that 

level. This is especially true for those policies that promote innovation in the market through the 

 

16 Environmental Finance. 2006. Planting Seeds on the Forecourt. 

URL: http://www.environmental-finance.com/2006/0602feb/biofuel.htm 17 De Miguel, R. 2006. The Outlook for Bioethanol in Europe: Boosting Consumption. Presented at the World 

Biofuels Conference, May 2006. URL: 

http://www.ebio.org/downloads/publications/060509_eBIO_WBC_Seville_2006_def.pdf 18 Hungarian Government. 2003. Report of the Republic of Hungary to the EU Commission on the Promotion of the 

Use of Biofuels for Transport. URL: http://www.ebbeu.org/legis/Hungary%201st%20report%20Dir%202003%2030_EN.pdf

 17
development of expanded alternative fuels, while focusing on bioethanol and biodiesel based on 

their current availability and understanding. 

Further, these international policies illustrate an increasing interest at the international scale in 

developing the market for renewable fuels. Although outside the scope of this review, the impact 

of increased renewable fuels worldwide may also have an impact on the development of the 

market for renewable fuels within the United States. Finally, it is important to note that in 

international policy, renewable fuels standards are not the only policy choice for encouraging the 

market for renewable fuels. Ranging from innovative financing support to direct tax incentives 

and education programs, international governments are using many mechanisms, another 

possible lesson for U.S. states. 

Lessons to Inform State Policy: International and State Renewable 

Portfolio Standards (RPS) 

The propagation of state-level renewable portfolio standards (RPS) across the United States has 

resulted in an increase of more than 4,000 MW of renewable energy capacity to date (UCS 

2006a, EIA AEO 2006). Internationally, these policies are also increasing in popularity (von der 

Linden et al. 2005). RPS policies use the same mandate or obligation system as renewable fuels 

standards, in that they set targets for renewable energy within a sector and allow the market to 

develop the least-cost means to that end. The connection to renewable energy markets, as well as 

the similarity of mechanism, allows policymakers to take lessons learned from RPS development 

and incorporate them into RFS development. This section presents an overview of the most 

overarching lessons and how they might be applied to RFS policies. 

Binding Targets 

The RPS experience illustrates that the existence of a policy promoting renewable energy will 

not automatically result in an increase in market share. Several states with RPS policies that 

either have nonbinding (voluntary) targets or lack enforcement of those targets are not seeing the 

development of new renewable electricity generation for a variety of reasons. For example, states 

with an enforceable penalty provision (e.g., Texas and New Jersey) have the most policy 

compliance (and therefore market development) than states without enforceable requirements 

(e.g., Nevada). 

State-Supported Backing/Long-Term Financing 

RPS policies that do not offer some assurance of cash flow for new plants are not consistently 

meeting their goals. Such assurance can be in the form of long-term contract requirements or 

state-supported backing. A robust spot market can also bolster investor confidence if policies are 

in place to ensure market access for new plants, if renewable generators can have 

nondiscriminatory access to the wholesale electricity market, and if the RPS encompasses a large 

market. 

Tradable Permits 

In the electricity sector, tradable permits are used to make the attributes of electricity a 

commodity and also to measure and verify renewable generation. Both of these impacts of 

tradable permits increase market flexibility, where entities that build eligible projects can sell the 

attributes from electricity generated to entities with RPS compliance requirements. The 

 18
ownership of RECs is tracked through a central tracking mechanism that ensures that only one 

entity claims title to the REC and therefore prevents any double-counting. This also allows for 

regulators to receive reports from the central tracking mechanism that ensures that only one 

entity owns title to each REC at a time, a design that prevents multiple claims to the same 

attributes, or double-counting. 

Because fuel is a commodity that can be stored and transported, it does not require the creation 

of a tradable permit to make the market work. However, there are still several benefits of a 

tradable permit system for RFS. The first is that this system could identify and track the creation 

of renewable fuels and provide a mechanism for regulators to ensure that no gallon is doublecounted. In addition, by allowing the permits to be openly traded on the market, the fuel can be 

sold and created local to the resource, which minimizes cost compared to actually transporting 

the fuel to the region with the requirement. This allows for nonresource rich areas to meet their 

RFS market goals (particularly for the U.S. RFS) by purchasing the renewable attributes of the 

commodity fuels. Similar to the SO2 and NOx emission markets, setting up such a system allows 

for the cheapest resources to be tapped first. 

Cost Caps 

Historically, renewable electricity costs more than conventional generation, leading to the 

possibility of excessive energy costs for consumers through the implementation of an RPS. 

Arizona, Hawaii, Minnesota, Montana, New Mexico, and Pennsylvania approached this 

challenge through allowing load-serving entities to request waivers if renewable electricity is 

“not economic” or are not available at “reasonable” costs. However, leaving these terms 

undefined results in increased regulatory and market uncertainty. Another type defines limits to 

the percentage that customer rates may increase as a result of the RPS (Colorado and New 

Mexico). It is unclear whether any of these attempts at consumer protection either protect 

consumers or provide the market certainty leading to the development of new generation. As this 

principle evolves, some state policies have not set this type of artificial percentage limit, but are 

instead basing cost caps on a clear understanding of the market. These states complete market 

cost studies in conjunction with RPS policy development to balance between setting the price 

cap high enough to allow natural market activity, but low enough to protect consumers from 

exorbitant costs (NYPSC 2004, Smith et al. 2000, UCS 2006b). 

Interaction with Other Policies/Programs 

RPS policies are not the only mechanism for promoting the growth of a renewable electricity 

market. And, as RPS policies become more common, the interaction of the different policies and 

programs for promotion has become more important to developing a clear, stable renewable 

electricity market. For example, voluntary green power programs and consumer renewable 

energy certificate (REC) purchases have become increasingly popular nationwide, both in and 

outside of states with an RPS. Significant discussion surrounds whether these voluntary 

purchases should count toward the mandatory RPS goals. If renewable electricity sold in green 

pricing programs is counted toward RPS requirements, utilities may have an easier time in (and 

more resources for) achieving the goals set forth by the mandatory RPS policy. If not, each of the 

mechanisms would be adding to the amount of renewable electricity generated in the overarching 

electricity market. Because the outcome determines whether voluntary programs are additional to 

or are as part of RPS goals, the issue has been termed “additionality.” 

 19
State RPS policies have concluded differently on the additionality issue, and that discussion is 

beyond the scope of this report. However, the themes surrounding these challenges will apply to 

RFS as the market for renewable fuels grows and as a result of an existing federal requirement. 

To date, there is no published discussion of the policy decision regarding how or if the existing 

state-level RFS policies will apply to the national RFS requirements, but the sum of the current 

supply requirements at the state and federal level (normalized for heat content) are far 

outstripped by actual biofuels plants currently under construction and expected to be completed 

in 2009 (RFA 2007, NBB 2006b). Currently, the supply of renewable fuels supply in 

development is projected to exceed all the current state and federal requirements (RFA 2007, 

NBB 2006b). However, as the policies develop and expand, this will be a growing issue for 

policymakers to consider. 

Summary of Lessons from International and State RPS 

The overarching lesson from existing international and state-level RPS policies is that clear 

language concerning the major design and implementation aspects of state requirements has 

proven critical to their success. Studies of international RPS policies have also found that the 

determining factor in many RPS policies is the quality of the policy design in terms of 

stakeholder involvement, binding targets, and penalty provisions (van der Linden et al. 2005). 

RPS policies meeting their goals have built market share for renewable energy establishing the 

following: 

• Statement of RPS application to specific markets/stakeholders 

• Uniform standard to be met, as well as methodologies for compliance calculation 

• Deadlines and length of requirement 

• Alternate compliance options/penalty provisions 

Conclusion: Informing Current and Future State RFS Policies 

Although there are a variety of mechanisms (e.g., tariffs, financial incentives) available to states 

for promoting renewable fuels markets, state-level RFS policies are growing in popularity, with 

10 in effect and 17 more proposed or under consideration. There are many specific lessons to be 

learned from the current policy climate for state-level RFS, as well as state, national, and 

international RPS and RFS. This review of RFS policies makes it clear that those that meet their 

goals are carefully designed and implemented including the setting of binding targets with 

enforcement provisions and clear compliance mechanisms, strong stakeholder participation, and 

standards that are well researched and/or flexible to changes in the market. The basic 

considerations for state-level RFS policies include: 

• Clarity of Drivers. Most current state legislative drivers include increased fuel selfsufficiency, improved environment, and local economic benefits through increased 

renewable fuel use. Well-designed market-based policies are a clear option for meeting 

these goals. 

• Market Applicability. State policymakers must determine the limitations on the market 

to which the policy applies. Restricting market size (e.g., state fleet vehicles only) allows 

for a more controlled testing environment for the policy, but also limits the benefits of a 

broad market action. 

 20
• Educated Standard Setting. Effective goals and mandates for renewable fuels standards 

should be based on resource availability as well as other market characteristics. 

• Fuel Choice Flexibility. One of the greatest benefits of this type of market-based 

mechanism is that it allows for the lowest-cost fuel to meet a mandate (instead of 

mandating a specific fuel) while also applying enough certainty that the requirement will 

be there in the investment community for the development of advanced renewable fuels. 

Current state-level policies are not reaping the full benefit of this mechanism when only 

particular fuels (e.g., ethanol, biodiesel) are considered to be renewable fuels. 

Further, successful policies in other sectors and at the international level can inform state policy 

development because they include: 

• Policy Flexibility. Experience in the RPS and international RFS arena illustrate that 

successful market-based policies are flexible, allowing for as much market input as 

possible. This includes allowing for least-cost renewable fuel options to meet the 

requirement (not limiting to specific fuel types). 

• Binding Targets. State RPS policies illustrate that binding targets paired with clear 

compliance mechanisms and penalties provide the most investment certainty in a policy, 

leading to reduced financial risk and increased success of the policy. 

• Cost Caps. States policies need to include provisions for consumer protection in cases of 

extreme fuel prices. Lessons from RPS development (specifically in Massachusetts) 

indicate that extensive market research is required to appropriately set cost caps that 

minimize uncertainty in the investment community, and therefore increase the likelihood 

of successful renewable fuel development. 

• Tradable Permits for Measurement and Verification. These tradable credit systems 

have become the centerpiece facilitating compliance in RPS policies. For state RFS 

provisions, this could be done through a similar mechanism. EPA is currently 

investigating a credit trading system as part of the federal RFS, which may aid states in 

development of such systems. 

Other interesting policy developments worth consideration are incorporating into the larger 

comprehensive plan (e.g., Spain) and supporting a public/private partnership (e.g., Australia). 

Although these advanced mechanisms have not been evaluated, they may provide an opportunity 

for further success in meeting drivers. 

Overall, activity in development of renewable fuels standards worldwide is evolving at a rapid 

pace, and lessons from existing and proposed policies as well as those in different sectors can 

inform the development of new policies. Challenges to policy development include the creation 

of clear and flexible goals with transparent compliance mechanisms and strong enforcement 

provisions. In addition, policies with strong stakeholder input and state support illicit buy-in 

from implementers and are more likely to lead to accomplishing stated goals. In the longer term, 

policies with fuel flexibility provisions will contribute most to innovation of lowest cost fuels for 

compliance and long-term meeting of the drivers behind encouraging and building a competitive 

market for renewable fuels. 

 21
Appendix 

U.S. States with RFS Policy Action (December 2006) 

As of December 2006, there are 10 states with implemented renewable fuels standard (RFS) 

policies. Although all the policies attempt to expand the market for ethanol within the state, they 

have nuanced differences that conform to state needs. This appendix outlines known details of 

the state policies in effect, those that are proposed, and those states that have expressed interest. 

Colorado 

Description of Key Points: All state-owned diesel vehicles and equipment to be fueled with 

(B20) by January 2007. Policy is negated if B20 is 10 cents more per gallon than the price of 

conventional diesel (Colorado 2006). 

Hawaii 

Drivers. In 1994, the Hawaii State Legislature passed a law requiring that 85% of 

gasoline sold in the state contain 10% ethanol by volume (Martin 2004). The law was an 

attempt to expand the market for the sugar crops in Hawaii, but was largely ineffective as 

it lacked regulations and enforcement. Since the passage of the law, the legislature 

periodically revisits the issue to attempt to revive the legislation. In 2004, the state filed 

administrative rules implementing the law; and, in 2006, extended the deadline for 

compliance to 2008. 

Description of Key Points. The original 1994 legislation required that 85% of Hawaii’s 

gasoline sales by volume be comprised of 10% ethanol fuel (Hawaii Revised Statutes 

1994). In 2002, the law was revised to incorporate implications for noncompliance to be 

determined by the state; and, in 2004, administrative rules regarding the law were 

released with a target compliance date of April 2006 (HDBET 2004). Exemptions to the 

rule occur should the state determine that the requirement presents undue economic 

burdens on the state. Revised legislation, presented in the 2006 legislative session, 

extended the compliance date to April 2008 (Hawaii Legislature 2006). The revised 

legislation also directs state vehicles to use alternative fuels and ethanol whenever 

possible (Hawaii 2006).

Status. In 2003, when the revised legislation (incorporating compliance enforcement) for 

the 10% mandate was proposed, the Hawaii Department of Business, Economic 

Development, and Tourism (HDBET) conducted a study of the economic feasibility of 

the policy. The study found that because of the increased infrastructure improvements 

necessary in Hawaii to meet the mandate, the economic benefits could also be met by 

changing the rule that the state could only sell the ethanol in-state.. The report 

recommended that the ethanol producers be allowed to export ethanol instead of using it 

immediately to meet the fuel requirement in Hawaii (Gieskes and Hacket 2003) and 

started a discussion surrounding the rule. In 2006, however, the timeline for compliance 

was extended to 2008, but the rule remained unchanged in terms of the requirement. 

 22
Iowa 

Drivers. The Iowa Corn Growers Association was a proponent of a more stringent 25% 

by 2015 goal, indicating pressure on the state legislature for a stringent law from state 

corn growers. Another strong player in the passage of the legislation is the Iowa 

Renewable Fuels Association, a trade association made up of Iowa-based ethanol and 

biodiesel producers. 

Description of Key Points. The act requires that biofuels replace 25% percent of all 

gasoline sales by January 1, 2020. The legislation defines biofuels as ethanol or biodiesel, 

and allows for flexibility between the two for meeting the requirement. The law requires 

that the fuel be agriculturally based, but not that it is produced with Iowa crops. The 

requirement is scheduled to take effect beginning in 2009, according to the schedule in 

Table A-1. To assist retailers in meeting the goal, a tiered retailer income tax incentive of 

six and one-half cents per gallon of biofuels for those in compliance with the RFS takes 

effect in 2009. 

Table A-1. Compliance Schedule 

for Iowa RFS 

Year 

Percentage of 

Gasoline Sales 

Bio-fuel Required 

2009 10% 

2010 11% 

2011 12% 

2012 13% 

2013 14% 

2014 15% 

2015 17% 

2016 19% 

2017 21% 

2018 23% 

2019 25% 

Note: For retailers with <200,000 

gallon annual sales, compliance 

targets are delayed two years 

Source: IOWA RFA 2006 

Status. The law is currently in effect and requirements begin for retailers in 2009.

Louisiana 

Drivers. Louisiana’s primary driver for RFS implementation was to create a market for ethanol 

and biodiesel production within the state. One of the primary goals of the legislation was to 

propel Louisiana into a leadership position in renewable fuels among southern states (Odum 

2006). The legislation states that incorporating the use of renewable fuels is a matter of public 

policy because it is expected to:

1) Expand fuel availability without increasing dependence on foreign oil, 

2) Reduce consumer fuel process, 

3) Spur Louisiana’s rural economy (through increased production and building 

plants and distribution centers for fuel within the state), and 

 23
4) Improve the state’s environment through the use of clean-burning renewable 

fuels (Louisiana 2006). 

Description of Key Points. The Louisiana state RFS calls for 2% of gasoline sold in the 

state to be ethanol. Because Louisiana’s RFS is driven by increasing the market for 

production in the state, the 2% ethanol in gasoline requirement only goes into effect 

within six months after more than 50 million gallons of ethanol per year are produced 

within the state. Similarly, the biodiesel requirement goes into effect when the production 

of biodiesel within the state reaches 10 million gallons annually. Aviation fuels are 

exempt from the state rules. 

Status. The bill was signed by the governor in July of 2006 and is in effect. Currently, 

only one biodiesel facility is operational in Louisiana, with plans for more (Biodiesel 

Magazine 2006). The RFS will take effect six months after production reaches 50 million 

barrels of ethanol and 10 million barrels of biodiesel annually. 

Maryland 

Description of Key Points. By 2008, half the state fleet normally powered by diesel must 

be using a blend of at least B5 (NBBa 2006). 

Minnesota 

Description of Key Points. The Minnesota statute, passed in 2005, requires that 20% of 

all gasoline sold by volume must be ethanol by 2013 (Minnesota 2005).

Status. The 20% ethanol goal is an extension of the previous 10% ethanol standard of 

1991. The original 1991 law spurred the infrastructure needed to meet the new goal 

(Apollo 2006).

Missouri

Drivers. Creating a market for and expanding the corn market in Missouri is the primary 

driver for the Missouri RFS.

Description of Key Points. The Missouri law, signed July 5, 2006, requires that all nonpremium motor gasoline sold in Missouri contain 10% ethanol by volume by 2008. 

Eighty percent of the feedstock used to meet the requirement must be produced in 

Missouri or in plants more than half-owned by Missouri residents. The statute also 

authorized a grant program to subsidize Missouri ethanol producers to assist in building 

the market.

Status. There are currently four ethanol plants in the state. The three operational plants 

produce more than 100 million gallons of ethanol annually (Blunt 2006). 

 24
Montana 

Description of Key Points. Three months after the state is shown to produce the equivalent of 40 

million gallons per year of ethanol, all non-premium gasoline in the state is required to contain 

10% ethanol. In order to spur supply, the legislation also enacted a production incentive of $2 

million per plant per year within the state (RFA 2005b). 

 

Washington 

Drivers. The legislature determined that a market for renewable fuels was in the public 

interest of the state of Washington in order to reduce dependence on foreign oil, improve 

health and quality of life for residents, and stimulate growth of a new industry in 

agricultural and rural communities (Washington 2006).

Description of Key Points. The statute requires that gasoline sold in the state must 

contain 2% ethanol by volume. If higher percentages of ethanol in gasoline are found not 

to adversely affect air quality by state officials, the requirement can be increased to up to 

10% ethanol by volume. Similarly, diesel fuel distributors are required to certify that 2% 

of total diesel sales by volume annually are biodiesel when the director of agriculture 

determines that the state can supply the need – or by November 30, 2008. 

Summary of Proposed RFS Policies (December 2006) 

Most of the information below, including the identification of most pending legislation, came 

from the Renewable Fuels Association (RFA 2006). 

California 

Description of Key RFS Points: The environmental impacts of biodiesel fuel will be studied, and 

once it is determined that emissions will not be adversely impacted, a renewable diesel standard 

will come into effect. For all diesel fuel used in an internal combustion engine, the draft 

legislation (SB 1675) requires that at least 2% is biodiesel starting no later than one year after the 

findings of the aforementioned study are published, and at least 5% biodiesel no later than two 

years after the 2% requirement comes into effect (California 2006a). 

Current Status: Passed and re-referred to Appropriations Committee on June 29, 2006. Passed 

Senate 22-16 on August 31, 2006. Passed Assembly committee August 21, 2006, then failed 33 

to 40 on Assembly floor (California 2006b). 

Colorado 

Description of Key RFS Points: The draft legislation (SB 138) would require that all gasoline 

sold in Colorado contain a certain percentage of ethanol by a predetermined date (Table A-2). 

Table A-2. Compliance Schedule for Colorado RFS 

Percentage ethanol By when 

5% January 1, 2007 

10% January 1, 2009 

15% January 1, 2011 

20% January 1, 2013 

 25
It also requires that 75% of all gasoline sold from November to April contain 10% ethanol. 

Current Status: Passed the house and the senate, but was vetoed by then-Governor Bill Owens, 

who cited that it could increase fuel prices and that Denver already requires 10% ethanol from 

November through February (Owens 2006). 

Delaware

Description of Key RFS Points: Draft legislation (SB 132) would require that all diesel fuel sold 

in the state contain at least 2% biodiesel, effective January 2007. 

Current Status: Assigned to the House Transportation/Land Use and Infrastructure Committee 

June 29, 2005. 

Georgia – State Vehicle Requirement 

Description of Key RFS Points: (1) Draft requirement (SB 453) for state-owned vehicles to 

purchase at least 2% biodiesel fuel, as long as the cost does not exceed 105% of the cost of 

unblended diesel. 

(2) Also draft requirement (HB 1412) for state-owned vehicles to use renewable fuel to replace 

gasoline or diesel used in motor vehicles or equipment, as long as the fuel is compatible with the 

vehicle or equipment technology, and is reasonably available at a cost similar to that of 

conventional fuel. 

Current Status: (1) Passed the Senate (February 13, 2006) and is pending in the House. (2) 

Conference Committee report adopted March 30, 2006. 

Idaho 

Description of Key RFS Points: Sixty days after the state certifies in-state annual production of 

at least 30 million gallons of ethanol per year, all gasoline sales within the state must contain at 

least 10% ethanol (9.2% plus denaturant). Exempts premium gasoline used exclusively for 

aircraft that use motor vehicle fuel (SB 1364). 

Current Status: SB 1364 Passed the Senate (February 23, 2006). House Environment, Energy and 

Technology Committee referred bill to an Interim Energy Study Committee. (March 10, 2006). 

Illinois

Description of Key RFS Points: Draft legislation (SB 2236) would require that 10% of all motor 

fuel sold or offered in the state be from denatured ethanol starting in 2008, which would increase 

to 15% by 2012. 

Current Status: Passed the Senate (February 28, 2006). Stalled at end of legislative session in the 

House Rule Committee 

 26
Kansas 

Description of Key RFS Points: Proposed requirement of replacing 10% of gasoline (minimum 

of 9.2% and no more than 10%) sold or offered with ethanol and 2% of diesel sold or offered 

with biodiesel by January 2010 (SB 387). 

Current Status: Died in committee on May 25, 2006 (Kansas 2006). 

Michigan (Information provided via Kaplun 2006) 

Description of Key RFS Points: (1) Draft bill requiring 2% of gasoline sold or offered in the state 

to be ethanol, starting December 31, 2007 (SB 1341) (Michigan 2006a). 

(2) Draft bipartisan bill (SB 331/HB 4235). Within 30 days of the publication that the annual 

capacity for the production of biodiesel fuel in Michigan is greater than 12 million gallons, diesel 

fuel sold in the state shall include at least 2% biodiesel (Michigan 2006b). 

Current Status: (1) Referred to the Committee on Technology and Energy (June 28, 2006). (2) 

HB 4235 – re-referred to the Committee on Agriculture (March 21, 2006) and SB 331 – referred 

to and stalled in the Committee on Transportation. 

Nebraska 

Description of Key RFS Points: Draft legislation (LB 848) that all gasoline offered for sale, sold, 

or dispensed for use in Nebraska (except premium grade) shall contain a renewable fuel content 

equal to or greater than 3.5% by weight. Renewable fuel means fuel made from renewable 

sources such as ethanol produced from corn, sorghum, and biomass. 

Current Status: Indefinitely postponed (April 13, 2006 – Nebraska 2006) 

New Mexico

Description of Key RFS Points: Proposal to require that all gasoline sold to customers for use in 

motor vehicles shall contain 10% denatured ethanol by volume, and that all diesel fuel sold to 

customers for use in motor vehicles shall contain 2% biodiesel fuel (HB 282). The content 

requirement shall not apply when (1) the secretary, in consultation with the secretary of Taxation 

and Revenue and the director of the New Mexico Department of Agriculture, determines that 

sufficient amounts of denatured ethanol or biodiesel fuel are not available to meet the 

requirements of this section; or (2) the governor determines by executive order that an 

emergency or disaster has cause or appears likely to cause a disruption in the price or supply of 

gasoline or diesel fuel (New Mexico 2006a). 

Current Status: “Died in committee.” (as of July 21, 2006 – New Mexico 2006b) 

Oregon

Description of Key RFS Points: Draft House Bill 3481 – once ethanol production in the state 

reaches at least 90 million gallons on an annualized basis, for at least three months, then a retail 

dealer, nonretail dealer, or wholesale dealer of gasoline may not sell or offer for sale gasoline 

unless the gasoline contains at least 10% ethanol by volume (contains not less than 9.2% and not 

more than 10% by volume). Also, once in-state biodiesel production reaches at least 5 million 

 27
gallons annually, for at least three months, then diesel gasoline sold and offered in the state must 

contain at least 2% biodiesel by volume (Oregon 2005a). 

Current Status: Stalled in Conference Committee upon adjournment (August 5, 2005) (Oregon 

2005b). 

Tennessee – State Vehicle Requirement

Description of Key RFS Points: Proposal for all state-owned vehicle fleets consisting of more 

than 10 motor vehicles to develop a plan to reduce or displace at least 20% of current petroleum 

consumption by January 1, 2010 (SB 3748/HB 3626). Each plan shall initiate implementation by 

January 1, 2007. Goals may be met by displacing through the use of biodiesel, ethanol, synthetic 

oils or lubricants, other alternative fuels, the use of hybrid electric vehicles, other fuel-efficient 

or low emission vehicles, or additional methods...[as approved to reduce] harmful emissions. 

(Tennessee 2006a) 

Current Status: Passed by Senate and referred to the Environment, Conservation, and Tourism 

Committee March 1, 2006). Also passed by House and assigned to Sub-Committee on 

Conservation and Environment (March 15, 2006) (Tennessee 2006b). Stalled at end of legislative 

session. 

Wisconsin

Description of Key RFS Points: Draft legislation (AB 15/SB 15) to require that automotive 

gasoline contains not less than 9.2% nor more than 10% ethanol, no later than July 1, 2006 

(Wisconsin 2006). 

Current Status: AB15 was indefinitely postponed in the senate (March 6, 2006). SB15 failed to 

pass pursuant to Senate Joint Resolution 1 (May 11, 2006). 

Summary of Other State RFS Activity (December 2006) 

Indiana 

Governor Mitch Daniels signed a bill requiring the Environmental Quality Service Council to 

study the best way to implement the federal Renewable Fuels Standard of EPAct in Indiana. It 

will also examine the feasibility of requiring all vehicles sold in Indiana to be either E85 or B20 

compatible (RFA 2006). Most likely, RFS implementation would include a requirement for 

gasoline sold in the state to contain a certain percentage of ethanol and/or for diesel fuel sold in 

the state to contain biodiesel. (REAccess 2006). 

Michigan

HB 5181/SB 1077 established the Fuels of the Future Commission within the Department of 

Agriculture to investigate and recommend strategies to the governor and the state legislature 

about how to promote and encourage the use of alternative fuels. This bill was enacted on July 7, 

2006, and the report will be due one year from enactment (Michigan 2006c). 

 28
North Dakota

At the end of 2005, the commissioner for agriculture released a Roadmap for Renewable Energy 

in North Dakota. As part of that proposal, he recommends: making ethanol 10% of every gallon 

of gasoline sold in the state by 2008, increasing to 20% by 2013. He also recommends that 5% of 

every gallon of diesel sold by 2008 is biodiesel, increasing to 10% by 2012. (Johnson 2005.) 

Oregon

Governor Ted Kulongoski requested that a team of state agencies work with stakeholders to 

develop a Renewable Energy Action Plan – the final version of which was released in April 

2005. The plan contains a few relevant goals, including (Oregon 2005c): 

• By 2010, all diesel sold in Oregon will contain 5% biodiesel and 20% by 2025. 

• All standard (non-premium) gasoline sold in Oregon will contain 10% ethanol by 

2010. 

• Diesel used in all state government fleets will be B20 by 2025. 

• Five percent of all gasoline sold in Oregon will be E-85 blend by the year 2015, 

which will increase to 15% by 2025. 

South Dakota

U.S. Representative Stephanie Herseth commissioned a report on the impact of high gas prices 

on South Dakota families. Its results showed that the price of gasoline increased five times faster 

than inflation, and that a typical two-car South Dakota family paid $1,860 more for gasoline in 

2006 than in 2001. In a news release, she stated “A meaningful commitment to renewable fuels 

would be win-win for South Dakota families...our rural economy would benefit through the 

high-paying jobs created by a vibrant renewable fuels industry throughout the heartland.” 

(Herseth 2006) 

Virginia

Governor Tim Kaine signed Senate Bill 262, which outlines a Virginia Energy Plan. The 

plan directs the Commonwealth Transportation Board to encourage the use of biodiesel 

and other alternative fuels, to the extent practicable, in vehicles used to provide public 

transportation (Virginia 2006). 

 29
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Johnson, R. 2005. “Renewable Energy in North Dakota: A Roadmap for the Future,” Roger 

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 31
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x=&Session= 

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 32
Ohio. 2006. Legislative History of Action taken on Sub. HB 245, 126th General Assembly, 

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 33
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 34
F1147-E(12/2004) 

REPORT DOCUMENTATION PAGE Form Approved 

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5a. CONTRACT NUMBER

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4. TITLE AND SUBTITLE

Understanding and Informing the Policy Environment: State-Level 

Renewable Fuels Standards 

5c. PROGRAM ELEMENT NUMBER

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 NREL/TP-640-41075 

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6001.5010 

6. AUTHOR(S)

E. Brown, K. Cory, and D. Arent 

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National Renewable Energy Laboratory 

1617 Cole Blvd. 

Golden, CO 80401-3393 

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NREL/TP-640-41075 

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14. ABSTRACT (Maximum 200 Words)

Renewable fuels standard (RFS) policies are becoming a popular public policy mechanism for developing the market 

for renewable fuels in the transportation sector. During the past decade, U.S. states and several countries began 

implementing these more market-based (less command and control) policies to support increased biofuels production 

and use. This paper presents an overview of current and proposed U.S. state-level policies, as well as selected 

electric sector policies and international fuel standard policies. Current U.S. state-level renewable fuel policies list 

drivers including an improved economy and environment, as well as fuel self-sufficiency. Best practices and 

experience from an evaluation of renewable portfolio standards (RPS) in the United States and international RFS 

policies can inform U.S. state-level policy by illustrating the importance of policy flexibility, binding targets, effective 

cost caps, and tradable permits. Understanding and building on the experiences from these previous policies can 

improve the policy mechanism and further develop a market for renewable fuels to meet the goals of improved 

economy, environment, and fuel self-sufficiency. 

15. SUBJECT TERMS

Renewable fuels standards; RFS; renewable portfolio standards; RPS; state policy; energy plan; policy drivers; 

binding targets; markets; cost caps; biofuels; biodiesel; enthanol; international policy; fuels; transportation; Karlynn 

Cory; Doug Arent; Elizabeth Brown. 

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