Title

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

Campus Units

Center for Agricultural and Rural Development, Economics

Document Type

Article

Publication Version

Submitted Manuscript

Publication Date

2-2-2012

Journal or Book Title

American Journal of Agricultural Economics

Volume

94

Issue

3

First Page or Article ID Number

750

Last Page

762

DOI

10.1093/ajae/aar142

Abstract

We develop a conceptual model to study the impact of mandate policies on stimulating investment in cellulosic biofuel refineries. In a two-period framework, we compare the first-period investment level (FIL) under three scenarios: laissez-faire, non-waivable mandate (NWM) policy, and waivable mandate (WM) policy. Results show that when plant-level marginal costs are increasing then both NWM policy and WM policy may stimulate FIL. The WM policy has a smaller impact than does the NWM policy. When the plant-level marginal costs are constants, however, WM policy does not increase FIL but does increase the expected profit of more efficient investors.

JEL Classification

D24, L52, Q48

Comments

This working paper was published as Miao, Ruiqing, David A. Hennessy and Bruce A. Babcock, "Investment in Cellulosic Biofuel Refineries: Do Waivable Biofuel Mandates Matter?," American Journal of Agricultural Economics 94 (2012): 750–762, doi:10.1093/ajae/aar142.