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

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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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    1. Bryant, Henry L. & Lu, Jiamin & Richardson, James W. & Outlaw, Joe L., 2010. "Long-term Effects of the U.S. Renewable Fuel Standard on World Hunger," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61262, Agricultural and Applied Economics Association.
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    2. 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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