The Price of Biodiesel RINs and Economic Fundamentals

Irwin, Scott H.; McCormack, Kristen; Stock, James H.

doi:10.1002/ajae.12014

Cited by 8 publications

(4 citation statements)

References 7 publications

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“…When the BTC is not in place, it appears that the effect of the BTC expiration is a decrease in the RIN price of 0.251 dollars per gallon. The estimated value of -0.251 indicates that the market participants believe that the BTC will be retroactively reinstated with a 25.1% chance, while Irwin et al (2020) show the estimated probabilities between 9.8-14.6% from their linear models.…”

Section: Empirical Results and Discussion (1) Stationarity Testsmentioning

confidence: 99%

“…If the RFS mandate is at a higher level, biodiesel might be a complement to diesel because blenders have to mix the required amount of biodiesel despite higher biodiesel prices. Irwin et al (2020) show that the EPA, the agency that sets annual targets, decided the RVO taking into account whether the BTC is in place or not. Therefore, if the EPA set an ambitious mandate volume with the BTC in place, then biodiesel and diesel might be complements in that year.…”

Section: (4) Discussionmentioning

confidence: 99%

“…conceptually suggest an economic model of D4 RIN pricing that takes into account prices of biodiesel and diesel and the biodiesel tax credits. While Irwin and Good (2017A) do not incorporate the option value of RINs, the uncertainty surrounding the BTC, and the nature of bankable compliance permits,Irwin et al (2020) develop the fundamental D4 RIN price model to improve the limitations Lade et al (2018). also present a dynamic model of RIN prices with uncertainty and consider the features of RIN markets such as multiple compliance periods with banking and borrowing and nested biofuel mandates.4.…”

mentioning

confidence: 99%

“…Biodiesel typically has higher prices than diesel, so the D4 RIN prices have been positive and often large compared to the fuel prices throughout the life of the mandate. We conceptually employ the static D4 RIN pricing model suggested byIrwin and Good (2017A) andIrwin et al (2020). Considering only an RFS biodiesel volume mandate and setting aside briefly the BTC, the fundamental D4 RIN prices at the time t are…”

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confidence: 99%

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Three essays on biofuel policies and aggregate supply curve

Kim¹

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The first essay investigates the impacts of Brazil's new biofuel policy, namely RenovaBio. RenovaBio aims to reduce greenhouse gas (GHG) emissions in the transportation sector through expansion of biofuels by requiring tradable decarbonization credits (CBIOs) associated with the GHG reductions achieved by biofuels. We model the CBIO and fuel markets using a partial equilibrium model to simulate the impacts of RenovaBio. As a result of the implementation of RenovaBio, biofuel consumption increases, and petroleum product use decreases to meet the CBIO compliance targets. Perhaps because of reduced targets during the pandemic, CBIO prices remain low, but our estimates highlight the potential for higher prices and large impacts. Results also show that RenovaBio can cause 7.2 percent of GHG abatement with an annual average compliance cost of R$ 36.3 billion. Total compliance costs are reduced if CBIO compliance targets are relaxed or there is good progress reducing biofuel carbon intensities. The second essay investigates the pass-through of the biodiesel-diesel price spread and BTC to the RIN price and estimate whether the market expectations about the reinstatement of the BTC have affected the RIN prices. The USA biodiesel tax credit (BTC) is a subsidy that could affect the cost of biofuel mandates in that country, but with uncertainty because the BTC is not continuously in place and is otherwise retroactively applicable. The biofuel mandate compliance certificate (RIN) price presumably depends on the price of fuels, such as biodiesel and diesel, as well as the BTC. Our estimated results shows that market participants' responses to the uncertainty of BTC might be different across time. These results could raise questions about whether an inconsistently applied BTC in the context of a blend mandate encourages biofuel expansion. The last essay develops aggregate supply response of Korean rice farms from the results of farm-level estimation. We first estimate supply components using detailed farm-level data. The farming area, land productivity, and farm exit are examined to see how those components are affected by the rice price and other determinants. We also estimate the debt-to-asset ratio that could influence farming area and farm exit. Then, we simulate the short- and long-run supply curves implied by aggregating farm-level responses to price changes. Given the price changes in our simulations, the price elasticities of Korean rice production are between 1.00-1.79 in the short run and 1.57-2.77 in the long run. The decomposed aggregate supply response into its three components shows that supply response might be under-estimated when we focus on only a component of total supply.

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Section: Empirical Results and Discussion (1) Stationarity Testsmentioning

confidence: 99%

Section: (4) Discussionmentioning

confidence: 99%

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confidence: 99%

mentioning

confidence: 99%

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Three essays on biofuel policies and aggregate supply curve

Kim¹

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Assessing the efficiency implications of renewable fuel policy design in the United States

Zhong

Khanna

2022

J of Agr & App Econ Assoc

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Obligated parties have chosen to comply with the Renewable Fuel Standard (RFS) by increasing the blending of biomassbased biodiesel beyond originally targeted levels rather than increasing blending/consumption of ethanol to targeted levels that would have required pricing higher blends of ethanol (E85) at or below an energy-equivalent level to E10. This paper develops a welfare-economic framework to analyze the extent to which the nested design and the accompanying cellulosic waiver credit and biodiesel tax credit contributed to a compliance strategy by blenders that favored blending of biodiesel instead of inducing consumption of E85, and its implications for social welfare.

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The Design of Renewable Fuel Mandates and Cost Containment Mechanisms

Lade

Lawell

2021

Environ Resource Econ

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The Price of Biodiesel RINs and Economic Fundamentals

Cited by 8 publications

References 7 publications

Three essays on biofuel policies and aggregate supply curve

Three essays on biofuel policies and aggregate supply curve

Assessing the efficiency implications of renewable fuel policy design in the United States

The Design of Renewable Fuel Mandates and Cost Containment Mechanisms

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