IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v9y2017i11p2056-d118140.html
   My bibliography  Save this article

Policy Uncertainty and the US Ethanol Industry

Author

Listed:
  • Jason P. H. Jones

    () (Resource, Energy, and Environmental Economics, RTI International, RTP, NC 27709, USA)

  • Zidong M. Wang

    () (Department of Agricultural Economics, Texas A&M University, College Station, TX 77840, USA)

  • Bruce A. McCarl

    () (Department of Agricultural Economics, Texas A&M University, College Station, TX 77840, USA)

  • Minglu Wang

    () (Department of Agricultural Economics, Texas A&M University, College Station, TX 77840, USA)

Abstract

The Renewable Fuel Standard (RFS2), as implemented, has introduced uncertainty into US ethanol producers and the supporting commodity market. First, the fixed mandate for what is mainly cornstarch-based ethanol has increased feedstock price volatility and exerts a general effect across the agricultural sector. Second, the large discrepancy between the original Energy Independence and Security Act (EISA) intentions and the actual RFS2 implementation for some fuel classes has increased the investment uncertainty facing investors in biofuel production, distribution, and consumption. Here we discuss and analyze the sources of uncertainty and evaluate the effect of potential RFS2 adjustments as they influence these uncertainties. This includes the use of a flexible, production dependent mandate on corn starch ethanol. We find that a flexible mandate on cornstarch ethanol relaxed during drought could significantly reduce commodity price spikes and alleviate the decline of livestock production in cases of feedstock production shortfalls, but it would increase the risk for ethanol investors.

Suggested Citation

  • Jason P. H. Jones & Zidong M. Wang & Bruce A. McCarl & Minglu Wang, 2017. "Policy Uncertainty and the US Ethanol Industry," Sustainability, MDPI, Open Access Journal, vol. 9(11), pages 1-14, November.
  • Handle: RePEc:gam:jsusta:v:9:y:2017:i:11:p:2056-:d:118140
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/9/11/2056/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2071-1050/9/11/2056/
    Download Restriction: no

    References listed on IDEAS

    as
    1. McPhail, Lihong Lu & Babcock, Bruce A., 2012. "Impact of US biofuel policy on US corn and gasoline price variability," Energy, Elsevier, vol. 37(1), pages 505-513.
    2. Ruiqing Miao & David A. Hennessy & Bruce A. Babcock, 2012. "Investment in Cellulosic Biofuel Refineries: Do Waivable Biofuel Mandates Matter?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(3), pages 750-762.
    3. Seth Meyer & Wyatt Thompson, 2012. "How Do Biofuel Use Mandates Cause Uncertainty? United States Environmental Protection Agency Cellulosic Waiver Options," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(4), pages 570-586.
    4. Schneider, Uwe A. & McCarl, Bruce A., 2005. "Implications of a Carbon-Based Energy Tax for U.S. Agriculture," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 34(2), pages 1-15, October.
    5. Kim, Man-Keun & McCarl, Bruce A., 2009. "Uncertainty Discounting for Land-Based Carbon Sequestration," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 41(1), pages 1-11, April.
    6. Seth Meyer & Wyatt Thompson, 2012. "How Do Biofuel Use Mandates Cause Uncertainty? United States Environmental Protection Agency Cellulosic Waiver Options," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(4), pages 570-586.
    7. Condon, Nicole & Klemick, Heather & Wolverton, Ann, 2015. "Impacts of ethanol policy on corn prices: A review and meta-analysis of recent evidence," Food Policy, Elsevier, vol. 51(C), pages 63-73.
    8. Bruce A. Babcock, 2012. "Preliminary Assessment of the Drought's Impacts on Crop Prices and Biofuel Production," Center for Agricultural and Rural Development (CARD) Publications 12-pb7, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    9. Beddow, Jason M. & Pardey, Philip G. & Alston, Julian M., 2009. "The Shifting Global Patterns of Agricultural Productivity," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 24(4), pages 1-10.
    10. Xavier Villavicencio & Bruce McCarl & Ximing Wu & Wallace Huffman, 2013. "Climate change influences on agricultural research productivity," Climatic Change, Springer, vol. 119(3), pages 815-824, August.
    11. Dumortier, Jerome & Kauffman, Nathan & Hayes, Dermot J., 2015. "Uncertainty and Time-to-Build in Bioenergy Crop Production," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205574, Agricultural and Applied Economics Association.
    12. Christopher R. Knittel & Ben S. Meiselman & James H. Stock, 2017. "The Pass-Through of RIN Prices to Wholesale and Retail Fuels under the Renewable Fuel Standard," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(4), pages 1081-1119.
    13. Zhang, Zibin & Lohr, Luanne & Escalante, Cesar & Wetzstein, Michael, 2010. "Food versus fuel: What do prices tell us?," Energy Policy, Elsevier, vol. 38(1), pages 445-451, January.
    14. Carriquiry, Miguel A. & Du, Xiaodong & Timilsina, Govinda R., 2011. "Second generation biofuels: Economics and policies," Energy Policy, Elsevier, vol. 39(7), pages 4222-4234, July.
    15. Bruce A. Babcock & Sebastien Pouliot, 2013. "Price It and They Will Buy: How E85 Can Break the Blend Wall," Center for Agricultural and Rural Development (CARD) Publications 13-pb11, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    16. K. D. Cocks, 1968. "Discrete Stochastic Programming," Management Science, INFORMS, vol. 15(1), pages 72-79, September.
    17. Coyle, William T., 2010. "Next-Generation Biofuels: Near-Term Challenges and Implications for Agriculture," Amber Waves:The Economics of Food, Farming, Natural Resources, and Rural America, United States Department of Agriculture, Economic Research Service, pages 1-8.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    policy uncertainty; market stability; renewable fuel standard; sector modeling; drought;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:9:y:2017:i:11:p:2056-:d:118140. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (XML Conversion Team). General contact details of provider: https://www.mdpi.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.