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Going Beyond the Blend Wall: Policy Incentives for Fuel Consumers to Supplement the Renewable Fuel Standard

Author

Listed:
  • Zhong, Jia
  • Khanna, Madhu
  • Chen, Xiaoguang

Abstract

The direct incentive from the renewable fuel standard for fuel consumers is limited while the penetration of flexible fuel vehicles (FFV) stays stagnated. To study alternative policy incentives and its mechanism targeted at consumer to supplement the standards from the demand side, we develop a framework of dynamic economic partial equilibrium model. We find that under RFS 2022 schedule, explicitly pronounced cross-subsidization on both fuels (yearly average $0.41/gge tax on preblended fuel and $2.35/gge subsidy on ethanol) and vehicles (average $2.8k tax on CV and $2.4k purchase subsidy on FFV) are needed for consumers to switch to higher ethanol blends and FFV. The retail E100 is priced lower than its energy content as with E10 to the extent to attract FFV users consume higher blends and stimulate FFV purchase while offset the drawbacks of the higher vehicle costs and its less fuel efficiency. A lengthened policy not only alleviates the pricing strategies pressure but also reduces the welfare loss. Improved competitiveness in sales price is more effective in benefiting the vehicle drivers with less feebate intensity.

Suggested Citation

  • Zhong, Jia & Khanna, Madhu & Chen, Xiaoguang, 2017. "Going Beyond the Blend Wall: Policy Incentives for Fuel Consumers to Supplement the Renewable Fuel Standard," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258483, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea17:258483
    DOI: 10.22004/ag.econ.258483
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    File URL: http://ageconsearch.umn.edu/record/258483/files/AAEA%20manuscript_JiaZhong%20_0718.pdf
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    References listed on IDEAS

    as
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    Keywords

    Resource/Energy Economics and Policy; Demand and Price Analysis; Land Economics/Use;

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