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Industry Compliance Costs Under the Renewable Fuel Standard: Evidence from Compliance Credits

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  • Wardle, Arthur R.
  • Akhundjanov, Sherzod B.

Abstract

The renewable fuel standard (RFS), which requires oil refineries to blend ethanol into domestic fuel supplies, is a market-based policy that implements tradable compliance credits so as better to equalize compliance costs across firms. We exploit unanticipated regulatory announcements that caused major swings in the prices of these compliance credits to retrieve reduced-form estimates of how the RFS affects the stock prices of publicly-traded refining firms. Our analysis reveals no significant stock price response among smaller firms in our sample and a small but statistically significant price response among large refiners. These findings are relevant to policy in that they cast doubt on concerns that the RFS allows integrated refiners to abuse merchant refiners. Our findings also shed light on the necessity of small refinery exemptions, which are intended to shield small, financially vulnerable refiners from RFS compliance costs.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Wardle, Arthur R. & Akhundjanov, Sherzod B., 2022. "Industry Compliance Costs Under the Renewable Fuel Standard: Evidence from Compliance Credits," 2024 Annual Meeting, July 28-30, New Orleans, LA 322199, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea22:322199
    DOI: 10.22004/ag.econ.322199
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    References listed on IDEAS

    as
    1. Bruce A. Babcock & Gabriel E. Lade & Sebastien Pouliot, 2016. "Impact on Merchant Refiners and Blenders from Changing the RFS Point of Obligation," Center for Agricultural and Rural Development (CARD) Publications 16-pb20, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. Li, Jing & Stock, James H., 2019. "Cost pass-through to higher ethanol blends at the pump: Evidence from Minnesota gas station data," Journal of Environmental Economics and Management, Elsevier, vol. 93(C), pages 1-19.
    3. Pouliot, Sebastien & Smith, Aaron & Stock, James H., 2017. "RIN Pass-Through at Gasoline Terminals," ISU General Staff Papers 201702220800001049, Iowa State University, Department of Economics.
    4. 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.
    5. Gabriel E. Lade & James Bushnell, 2019. "Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(3), pages 563-592.
    6. Burkhardt, Jesse, 2019. "The impact of the Renewable Fuel Standard on US oil refineries," Energy Policy, Elsevier, vol. 130(C), pages 429-437.
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