Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard

dc.contributor.author Lade, Gabriel
dc.contributor.author Lade, Gabriel
dc.contributor.author Lawell, C.-Y. Cynthia
dc.contributor.author Smith, Aaron
dc.contributor.department Center for Agricultural and Rural Development
dc.date 2018-02-17T18:46:45.000
dc.date.accessioned 2020-06-30T01:05:57Z
dc.date.available 2020-06-30T01:05:57Z
dc.date.embargo 2016-07-20
dc.date.issued 2016-05-01
dc.description.abstract <p>The Renewable Fuel Standard (RFS2) mandates large increases in U.S. biofuel consumption and is implemented using a market for tradable compliance credits, known as RINs. In early 2013, RIN prices soared, causing the regulator to propose reducing future mandates. We develop a dynamic model of RFS2 compliance to demonstrate how changes in expectations about future policy affect current compliance costs, and we use a market effciency test to demonstrate that RIN markets have behaved in accordance with our model. We then estimate empirically the effect of three “policy shocks” that reduced the expected mandates in 2013. The largest of these shocks decreased the total cost of compliance by nearly $8 billion. The burden of the mandate reductions fell primarily on advanced biofuel firms and on 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 RFS2.</p>
dc.identifier archive/lib.dr.iastate.edu/card_workingpapers/582/
dc.identifier.articleid 1584
dc.identifier.contextkey 8859704
dc.identifier.s3bucket isulib-bepress-aws-west
dc.identifier.submissionpath card_workingpapers/582
dc.identifier.uri https://dr.lib.iastate.edu/handle/20.500.12876/12945
dc.source.bitstream archive/lib.dr.iastate.edu/card_workingpapers/582/16wp565.pdf|||Sat Jan 15 01:01:52 UTC 2022
dc.subject.disciplines Agricultural and Resource Economics
dc.subject.disciplines Oil, Gas, and Energy
dc.subject.disciplines Public Economics
dc.subject.keywords tradable credits
dc.subject.keywords policy design
dc.subject.keywords quantity mechanisms
dc.subject.keywords renewable fuel standard
dc.title Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard
dc.type article
dc.type.genre article
dspace.entity.type Publication
relation.isAuthorOfPublication b29c4945-577c-4433-a415-1cb4c46d302d
relation.isOrgUnitOfPublication 1a6be5f1-4f64-4e48-bb66-03bbcc25c76d
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