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Renewable Identification Numbers are the Tracking Instrument and Bellwether of US Biofuel Mandates

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  • Wyatt Thompson
  • Seth Meyer
  • Pat Westhoff
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    Abstract

    US energy policy mandates minimum levels of biofuel use. The four interdependent mandates of the 2007 legislation - EISA - are defined by their feedstocks and greenhouse gas reduction targets, and are each set to rise over the coming years. If the volumes of use would be below the mandated amount, due perhaps to a low petroleum price or some other circumstance, then the mandate becomes binding. It forces fuel blenders to bid higher the price at which they buy biofuel and discount the price at which they sell biofuels. Conversely, if biofuel use would exceed the mandated volumes anyway, then this policy will not affect markets. Renewable Identification Numbers (RINs) are the traded instruments for implementing these mandates, and key indicators of the degree to which mandates affect biofuel markets, if at all. RIN values will rise if the mandate is binding, as fuel blenders scramble to get enough RINs to meet their mandates. A high RIN price signals that this policy affects biofuel markets, and consequently probably drives agricultural commodity prices higher. But the EISA gives considerable flexibility that will affect RIN values in practice, causing great uncertainty about how they will affect biofuel markets and, through them, agricultural commodity markets. Copyright (c) 2009 The Authors. Journal compilation (c) The Agricultural Ecomomics Society and the European Association of Agricultural Economists 2009.

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    Bibliographic Info

    Article provided by The Agricultural Economics Society in its journal EuroChoices.

    Volume (Year): 8 (2009)
    Issue (Month): 3 (December)
    Pages: 43-50

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    Handle: RePEc:bla:eurcho:v:8:y:2009:i:3:p:43-50

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