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.
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.
Miao, Ruiqing; Hennessy, David A.; and Babcock, Bruce A., "Investment in Cellulosic Biofuel Refineries: Do Renewable Identification Numbers Matter?" (2010). CARD Working Papers. 509.
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