Campus Units
Economics, Center for Agricultural and Rural Development
Document Type
Article
Publication Version
Accepted Manuscript
Publication Date
4-2018
Journal or Book Title
American Journal of Agricultural Economics
Volume
100
Issue
3
First Page or Article ID Number
707
Last Page
731
DOI
10.1093/ajae/aax097
Abstract
The Renewable Fuel Standard mandates large increases in U.S. biofuel consumption and is implemented using tradable compliance credits known as RINs. In early 2013, RIN prices soared, causing the regulator to propose reducing future mandates. We estimate empirically the effect of three ‘policy shocks’ that reduced the expected mandates in 2013. We find that the largest of these shocks decreased the value of the fuel industry’s 2013 compliance obligation by $7 billion. We then study the effects of the shocks on commodity markets and the market value of publicly traded biofuel firms. Results show that the burden of the mandate reductions fell primarily on advanced biofuel firms and commodity markets of the marginal compliance biofuel. We argue that the policy shocks reduced the incentive to invest in the technologies required to meet the future objectives of the RFS, and discuss alternative policy designs to address the problems that arose in 2013.
JEL Classification
H23, Q42, Q50
Copyright Owner
The Authors
Copyright Date
2018
Language
en
File Format
application/pdf
Recommended Citation
Lade, Gabriel E.; Lin Lawell, C.-Y. Cynthia; and Smith, Aaron, "Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard" (2018). Economics Publications. 624.
https://lib.dr.iastate.edu/econ_las_pubs/624
Included in
Behavioral Economics Commons, Growth and Development Commons, Oil, Gas, and Energy Commons
Comments
This is a manucript of an article published as Lade, Gabriel E., C-Y. Cynthia Lin Lawell, and Aaron Smith. "Policy shocks and market-based regulations: Evidence from the Renewable Fuel Standard." American Journal of Agricultural Economics 100, no. 3 (2018): 707-731. doi: 10.1093/ajae/aax097. Posted with permission.