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The Complex Structure of the US Biofuel Mandate: A Handbook

In: The Economics of Biofuel Policies

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  • Justin Shepherd

Abstract

Taleb (2012, 373) notes that “We have developed a fondness for neomanic complication over archaic simplicity.” Never have truer words been spoken when describing and explaining the logic of the US biofuel mandate under the rubric of the renewable fuel standard (RFS) with its nested structure and many interactions. For example, we delayed our explanation for the prediction errors in 2011 and 2013 of the soybean oil-biodiesel price linkage model because it hinges on the interaction of sub-mandates in the RFS. It turns out that the nested structure of the US mandate also has implications for corn-ethanol and corn prices, and trade in both ethanol (including two-way trade with Brazil) and biodiesel. Therefore, prices of both biofuels and three main feedstocks: corn, soybean, and canola oil and sugarcane (and, thus, sugar) are being affected by the way in which the complex US RFS mandate works. Furthermore, the primary driver of prices and trade since early 2013 has been the ethanol blend wall in the United States and more recently, uncertainty in what the Environmental Protection Agency (EPA) will finally rule for 2014 (which at the time of writing, has still not been resolved),1 both having implications for the way forward in 2015 and beyond. Therefore, we devote an entire chapter to explain the economics of the complex structure of the US mandate, given its importance, and as the reader will quickly find out, its complexity.

Suggested Citation

  • Justin Shepherd, 2015. "The Complex Structure of the US Biofuel Mandate: A Handbook," Palgrave Studies in Agricultural Economics and Food Policy, in: The Economics of Biofuel Policies, chapter 0, pages 171-190, Palgrave Macmillan.
    • Handle: RePEc:pal:psachp:978-1-137-41485-4_11
    DOI: 10.1057/9781137414854_11
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