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Demystifying RINs: A Partial Equilibrium Model of U.S. Biofuels Markets

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  • Korting, Christina
  • Just, David R.

Abstract

We explore four fundamental channels of mandate compliance available under current U.S. bio- fuels policy: increased ethanol blending through E10 or E85, increased biodiesel blending, and a reduction in the overall compliance base. Simulation results highlight the interplay and varying importance of these channels at increasing blend mandate levels. In addition, we establish how RIN prices are formed: The value of a RIN in equilibrium is shown to re ect the marginal cost of compensating the blender for employing one additional ethanol-equivalent unit of biofuel. This contrasts with existing research equating the price of RINs to the gap between free-market ethanol supply and demand at the mandate level. We demonstrate the importance of this distinction in case of binding demand side infrastructure constraints such as the ethanol blend wall: as percent- age blend mandates increase, the market for low-ethanol blends may contract in order to reduce the overall compliance base. This has important implications for implied ethanol demand in the economy.

Suggested Citation

  • Korting, Christina & Just, David R., 2016. "Demystifying RINs: A Partial Equilibrium Model of U.S. Biofuels Markets," Working Papers 250034, Cornell University, Department of Applied Economics and Management.
    • Handle: RePEc:ags:cudawp:250034
    DOI: 10.22004/ag.econ.250034
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    Cited by:

    1. Christina Korting & Harry de Gorter & David R Just, 2019. "Who Will Pay for Increasing Biofuel Mandates? Incidence of the Renewable Fuel Standard Given a Binding Blend Wall," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(2), pages 492-506.
    2. Trey Malone & K. Aleks Schaefer & Felicia Wu, 2021. "The Razor's Edge of “Essential” Labor in Food and Agriculture," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(1), pages 368-381, March.
    3. Szulczyk, Kenneth R. & Ziaei, Sayyed Mahdi & Zhang, Changyong, 2021. "Environmental ramifications and economic viability of bioethanol production in Malaysia," Renewable Energy, Elsevier, vol. 172(C), pages 780-788.
    4. Luo, Jinjing & Moschini, GianCarlo, 2019. "Pass-through of the policy-induced E85 subsidy: Insights from Hotelling's model," Energy Economics, Elsevier, vol. 84(C).
    5. Beaudoin, Justin & Chen, Yuan & Heres, David R. & Kheiravar, Khaled H. & Lade, Gabriel E. & Yi, Fujin & Zhang, Wei & Lin Lawell, C.-Y. Cynthia, 2018. "Environmental Policies in the Transportation Sector: Taxes, Subsidies, Mandates, Restrictions, and Investment," ISU General Staff Papers 201808150700001050, Iowa State University, Department of Economics.
    6. An, Henry & Qiu, Feng & Rude, James, 2021. "Volatility spillovers between food and fuel markets: Do administrative regulations affect the transmission?," Economic Modelling, Elsevier, vol. 102(C).
    7. Aui, Alvina & Wang, Yu, 2022. "Post-RFS supports for cellulosic ethanol: Evaluation of economic and environmental impacts of alternative policies," Energy Policy, Elsevier, vol. 170(C).

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    Keywords

    Resource /Energy Economics and Policy;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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