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Who Will Pay for Increasing Biofuel Mandates? Incidence of the Renewable Fuel Standard Given a Binding Blend Wall

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  • Christina Korting
  • Harry de Gorter
  • David R Just

Abstract

We show that the cost of increasing biofuel mandates given a binding ethanol blend wall falls disproportionately on diesel fuel consumers. The extent of the burden on diesel fuel consumers is explained neither by their relatively more inelastic demand nor by blenders seeking to capitalize on the biodiesel tax credit. Relaxing the blend wall constraint by increasing the potential demand for high-ethanol blends is the only effective lever to insulate diesel fuel drivers from the one-sided welfare impacts of rising mandate levels. The independent effects of the nested mandate structure and the joint compliance base under the Renewable Fuel Standard (RFS) generate the link between motor gasoline and diesel fuel markets. Our results highlight the importance of evaluating the incidence of the RFS in a holistic framework taking both ethanol and biodiesel into account.

Suggested Citation

  • Christina Korting & Harry de Gorter & David R Just, 2019. "Who Will Pay for Increasing Biofuel Mandates? Incidence of the Renewable Fuel Standard Given a Binding Blend Wall," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(2), pages 492-506.
    • Handle: RePEc:oup:ajagec:v:101:y:2019:i:2:p:492-506.
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    File URL: http://hdl.handle.net/10.1093/ajae/aay047
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    References listed on IDEAS

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    Cited by:

    1. Taheripour, Farzad & Baumes, Harry & Tyner, Wally Taheripour, Farzad, 2019. "Impacts of the U.S. Renewable Fuel Standard on Commodity and Food Prices," Conference papers 333127, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Gabriel E. Lade & C.-Y. Cynthia Lin Lawell, 2021. "The Design of Renewable Fuel Mandates and Cost Containment Mechanisms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(2), pages 213-247, June.
    3. Taheripour, Farzad & Baumes, Harry S. & Tyner, Wallace E., 2020. "Economic impacts of the U.S. Renewable Fuel Standard: An ex-post evaluation," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304252, Agricultural and Applied Economics Association.

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    More about this item

    Keywords

    Biofuels; blend mandate; E10; E85; joint compliance base; nesting; renewable fuel standard;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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