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Market Effects and Welfare Impacts of the Renewable Fuel Standard

Author

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  • de Gorter, Harry
  • Just, David
  • Korting, Christina
  • Radich, Anthony

Abstract

Excerpts from the Executive Summary: The key objectives of the cooperative agreement are threefold: to develop a theoretical model of RIN price determination; to explain its relation to the various means of overcoming the blend wall; and to assess the impact of the EPA adjusting the annual RFS mandate requirements down since 2014. To address these questions, we propose a partial equilibrium model of U.S. fuel markets capturing the joint compliance base and nested mandate structure of the RFS2 and simulate it using carefully calibrated demands for high-ethanol blends from the literature (Pouliot & Babcock (2014), Pouliot & Babcock (2016)). This approach allows us to evaluate the incidence of varying biofuels mandate levels taking into account the stringent demand constraints posed by the ethanol blend wall. Our findings can be categorized into (i) data driven insights about the severity of the blend wall constraint and the channels commonly used to overcome it; (ii) structural findings relating to the mechanism of the RFS2 such as the determination of RIN prices and an analysis of available compliance channels and their relative importance at varying mandate levels; and (iii) simulation results concerning the impact of the RFS2 on fuel market participants.

Suggested Citation

  • de Gorter, Harry & Just, David & Korting, Christina & Radich, Anthony, 2019. "Market Effects and Welfare Impacts of the Renewable Fuel Standard," USDA Miscellaneous 393838, United States Department of Agriculture.
    • Handle: RePEc:ags:usdami:393838
    DOI: 10.22004/ag.econ.393838
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    File URL: https://ageconsearch.umn.edu/record/393838/files/58-0111-15-018-Impacts-RFS.pdf
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