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Fueling Financial Stability: The Financial Impact of U.S. Renewable Fuel Standard

Author

Listed:
  • Karel Janda

    (Faculty of Finance and Accounting, Prague University of Economics and Business, Prague, Czech Republic & Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

  • Jan Sila

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

  • David Zilberman

    (Department of Agricultural and Resource Economics, University of California, Berkeley, CA)

Abstract

Oil price shocks, which materialize in petrol prices, put severe inflationary pressures on countries that rely largely on fossil fuels, causing financial instability. The Renewable Fuel Standard (RFS) program, implemented in the USA in 2005, sanctions blending corn-based ethanol with fuel and can offset oil price shocks. RFS is a technological innovation that protects against inflationary pressures while being ecologically beneficial. We examine how global oil price changes affect US petrol costs and the resulting savings for US families by assessing the program´s effectiveness. Our findings show that blending ethanol into petrol serves as a buffer against global oil price shocks, delivering an average $0.185 per gallon savings from 2019 to 2022. This translates to $22.8 billion in annual savings for American consumers. As the global debate shifts towards sustainable energy and climate change mitigation, our findings highlight the practical benefits of diversifying energy sources, which promote both environmental sustainability and economic stability in the face of volatile commodity price shocks.

Suggested Citation

  • Karel Janda & Jan Sila & David Zilberman, 2023. "Fueling Financial Stability: The Financial Impact of U.S. Renewable Fuel Standard," Working Papers IES 2023/30, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Feb 2023.
    • Handle: RePEc:fau:wpaper:wp2023_30
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    File URL: https://ies.fsv.cuni.cz/en/veda-vyzkum/working-papers/2023-30
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    More about this item

    Keywords

    Financial stability; Commodities; Energy markets; Technological Innovation; Ethanol; U.S.A.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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