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Conditional Suspension of the US Ethanol Mandate using Threshold Price inside a Competitive Storage Model

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  • Roberts, Michael J.
  • Tran, A. Nam

Abstract

In 2012, EPA turned down request to suspend the US ethanol mandate on the ground that doing so would not result in lower corn prices. Given that ethanol pro- duction accounts for more than 40 percent of the US annual corn harvest together with current trend of extreme weather events, it is likely that a similar request will resurface in the future. We therefore use a competitive storage model to investigate how a waiver of the US ethanol mandate, conditional on high corn price, might affect corn prices and consume welfares. It is found that although waiving the mandate when the price was at the level in 2012 would only result in moderate decrease of long run corn prices, the price volatility reductions are much larger. In addition, if the US corn yield in 2013 is as low as it was in 2012, suspending 20 percent of the mandate in 2012 will result in a price drop of 18 percent in 2013, higher than EPA's estimate of less than 1 percent. Associated with lower corn price is a gain of 7.69 billion dollars in US consumer welfares.

Suggested Citation

  • Roberts, Michael J. & Tran, A. Nam, 2013. "Conditional Suspension of the US Ethanol Mandate using Threshold Price inside a Competitive Storage Model," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150717, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea13:150717
    DOI: 10.22004/ag.econ.150717
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    References listed on IDEAS

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    Cited by:

    1. Héctor M. Núñez & Andrés Trujillo-Barrera, 2015. "Impact of U.S. Biofuel Policy in the Presence of Drastic Climate Conditions," Working Papers DTE 585, CIDE, División de Economía.
    2. Condon, Nicole & Klemick, Heather & Wolverton, Ann, 2015. "Impacts of ethanol policy on corn prices: A review and meta-analysis of recent evidence," Food Policy, Elsevier, vol. 51(C), pages 63-73.
    3. Zhou, Wei & Babcock, Bruce A., 2014. "Endogenous Price in a Dynamic Model for Agricultural Supply Analysis," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170584, Agricultural and Applied Economics Association.
    4. Hector, Nuñez & Andres, Trujillo-Barrera, 2014. "Impact of U.S. Biofuel Policy in the Presence of Uncertain Climate Conditions," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170620, Agricultural and Applied Economics Association.
    5. Zhou, Wei, 2015. "Three essays on modeling biofuel feedstock supply," ISU General Staff Papers 201501010800005728, Iowa State University, Department of Economics.

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