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

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.

Copyright Owner

The Authors

Language

en

File Format

application/pdf

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