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Investment in Cellulosic Biofuel Refineries: Do Renewable Identification Numbers Matter?

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  • Miao, Ruiqing
  • Hennessy, David A.
  • Babcock, Bruce A.

Abstract

A floor and trade policy in Renewable Identification Numbers (RINs) is the market mechanism by which U.S. biofuel consumption mandates are met. A conceptual model is developed to study the impact of RINs on stimulating investment in cellulosic biofuel refineries. In a two-period framework, we compare the first-period investment level (FIL) in three scenarios: (1) laissez-faire, (2) RINs under a nonwaivable mandate (NWM) policy, and (3) RINs under a waivable mandate (WM) policy. Results show that when firm-level marginal costs are constants, then RINs under WM policy do not stimulate FIL but they do increase the expected profit of more efficient investors. When firm-level marginal costs are not constants, however, RINs under WM policy stimulate FIL. RINs under NWM policy may or may not stimulate FIL, depending on the distribution of second-period cellulosic biofuel prices and on firm-level marginal costs.

Suggested Citation

  • Miao, Ruiqing & Hennessy, David A. & Babcock, Bruce A., 2010. "Investment in Cellulosic Biofuel Refineries: Do Renewable Identification Numbers Matter?," Hebrew University of Jerusalem Archive 94001, Hebrew University of Jerusalem.
    • Handle: RePEc:ags:hebarc:94001
    DOI: 10.22004/ag.econ.94001
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    3. Pierre-André Jouvet & Frédéric Lantz & Elodie Le Cadre, 2011. "The bioenergies development: the role of biofuels and the CO2 price," Working Papers 2011/02, INRA, Economie Publique.

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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