Investment in Cellulosic Biofuel Refineries: Do Waivable Biofuel Mandates Matter?

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)

Policy Shocks and Market‐Based Regulations: Evidence from the Renewable Fuel Standard

“…de Gorter and Just (2009), Lapan and Moschini (2012), and Holland et al (2009) study the market effects and efficiency of fuel mandates such as the RFS2 and California's Low Carbon Fuel Standard. More recent work compares welfare and markets outcomes under fuel mandates to those under taxes and cap and trade programs in alternative market settings and with different policy designs (Rajagopal et al, 2011;Rajagopal and Plevin, 2013;Lemoine, 2016;Bento et al, 2014;Lade and Lin Lawell, 2015a), explores unintended consequences of fuel mandates (Khanna et al, 2008;Holland et al, 2014Holland et al, , 2015, and studies the impact of economic and policy uncertainty on the incentive for investments in advanced fuel technologies (Miao et al, 2012;Clancy and Moschini, 2015). 5…”

Policy Uncertainty and the US Ethanol Industry

“…Dumortier et al [16] showed that the exercise of a cellulosic waiver would make landowners unwilling to switch from conventional crops to bioenergy crops, reducing cellulosic feedstock supply. Miao et al [17] found that a cellulosic waiver had no effect on investment decisions. They also found that, when firm-level marginal costs were not constant, higher RIN prices under a waivable mandate stimulated first stage investment.…”

The role of federal Renewable Fuel Standards and market structure on the growth of the cellulosic biofuel sector

“…Several studies have analyzed the impact of the RFS mandates on the production and consumption of renewable fuel, but most focused on corn-based ethanol and other firstgeneration biofuel feedstocks (e.g., Anderson and Coble, 2010;Gallagher et al, 2003;Gardner, 2007;Babcock, 2008a, 2008b;McCullough et al, 2011;McPhail, 2013, Chen andKhanna 2012). To date, only two studies, Miao et al (2012) and Chen and 4 Khanna (2012), examined how biofuel mandates affect the growth of the cellulosic biofuel industry. The most important of these for our purposes is Miao et al (2012), who modeled the impact of Renewable Identification Numbers (RINs) -tradable instruments developed by the EPA to implement EISA -on investments in cellulosic biofuel refineries given that the EPA is able to reduce the mandate from the original EISA level.…”

“…To date, only two studies, Miao et al (2012) and Chen and 4 Khanna (2012), examined how biofuel mandates affect the growth of the cellulosic biofuel industry. The most important of these for our purposes is Miao et al (2012), who modeled the impact of Renewable Identification Numbers (RINs) -tradable instruments developed by the EPA to implement EISA -on investments in cellulosic biofuel refineries given that the EPA is able to reduce the mandate from the original EISA level. They concluded that a waivable mandate may induce investment if refinery-level marginal costs are increasing but it has no effect on investment level if marginal costs are constant.…”

“…They concluded that a waivable mandate may induce investment if refinery-level marginal costs are increasing but it has no effect on investment level if marginal costs are constant. Neither Miao et al (2012) nor Chen and Khanna (2012) consider the impact of waiver credits, which allow obligated parties to buy their way out of their cellulosic obligation. Furthermore, both studies use a partial equilibrium model that does not address the interdependence between the feedstock sectors.…”