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Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard

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  • Gabriel E. Lade
  • James Bushnell

Abstract

The Renewable Fuel Standard (RFS) is among the largest renewable energy mandates in the world. The policy is enforced using tradeable credits that implicitly subsidize biofuels and tax fossil fuels. The RFS relies on these taxes and subsidies to be passed through to consumers to stimulate demand for biofuels and decrease demand for gasoline and diesel. Using station-level prices for E85 (a high-ethanol blend fuel) from over 450 retail fuel stations, we show that pass-through of the ethanol subsidy is, on average, complete. However, we find that full pass-through takes four to six weeks and that local market structure of gasoline stations influences both the speed and overall level of pass-through. JEL Codes: Q42, Q58, H23

Suggested Citation

  • Gabriel E. Lade & James Bushnell, 2016. "Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard," Center for Agricultural and Rural Development (CARD) Publications 16-wp570, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:16-wp570
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    More about this item

    Keywords

    retail fuel markets; E85; renewable fuel standard; subsidy pass-through;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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