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

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

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. Key words: cellulosic biofuels, investment, Renewable Identification Numbers, waivable mandate

Suggested Citation

  • Ruiqing Miao & David A. Hennessy & Bruce A. Babcock, 2010. "Investment in Cellulosic Biofuel Refineries: Do Renewable Identification Numbers Matter?," Center for Agricultural and Rural Development (CARD) Publications 10-wp514, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  • Handle: RePEc:ias:cpaper:10-wp514
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    References listed on IDEAS

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    1. Harry de Gorter & David R. Just, 2008. "The Economics of a Blend Mandate for Biofuels," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 738-750.
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    Cited by:

    1. Wang, Xiaolei & Ouyang, Yanfeng & Yang, Hai & Bai, Yun, 2013. "Optimal biofuel supply chain design under consumption mandates with renewable identification numbers," Transportation Research Part B: Methodological, Elsevier, vol. 57(C), pages 158-171.

    More about this item

    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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