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Thresholds and Regime Change in the Market for Renewable Identification Numbers

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  • Markel, Evan
  • English, Burton C.
  • Lambert, Dayton

Abstract

The coupling of RIN prices appears to be the result of an ethanol market subject to RFS mandates that exceed the blend wall and non-binding mandates in the biodiesel market. It is thought that the ethanol mandate is binding beyond the market absorption ability, and thus the primary drivers of D6 ethanol RIN price are unobserved thresholds in renewable volume obligations, and deterministic variables such as corn price and ethanol blend margins. In regard to the market for biodiesel, the hypothesis is that biodiesel producers are over-complying with the RFS biodiesel mandates to meet an ethanol mandate which has crossed some threshold in proximity to the ethanol blend wall. Therefore biodiesel mandates are essentially non-binding. Nonlinear threshold models are applied to address nonlinearities occurring in the prices. These types of models are well suited to handling nonlinearities and regime changes, such as those which occur with RFS revisions. A candidate set of models are fitted to the data and model selection techniques are carried out to determine the most appropriate fit.

Suggested Citation

  • Markel, Evan & English, Burton C. & Lambert, Dayton, 2016. "Thresholds and Regime Change in the Market for Renewable Identification Numbers," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236037, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea16:236037
    DOI: 10.22004/ag.econ.236037
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    References listed on IDEAS

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    1. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    2. Wyatt Thompson & Seth Meyer & Pat Westhoff, 2009. "Renewable Identification Numbers are the Tracking Instrument and Bellwether of US Biofuel Mandates
Identifikationsnummern für Erneuerbare Energien als Mittel der Rückverfolgbarkeit und Indikator f," EuroChoices, The Agricultural Economics Society, vol. 8(3), pages 43-50, December.
    3. Wyatt Thompson & Seth Meyer & Pat Westhoff, 2010. "The New Markets for Renewable Identification Numbers," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(4), pages 588-603.
    4. Wyatt Thompson & Seth Meyer & Pat Westhoff, 2010. "The New Markets for Renewable Identification Numbers," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(4), pages 588-603.
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    Cited by:

    1. Korting, Christina & Just, David R., 2017. "Demystifying RINs: A partial equilibrium model of U.S. biofuel markets," Energy Economics, Elsevier, vol. 64(C), pages 353-362.

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