The Price of Biodiesel RINs and Economic Fundamentals

Scott Irwin, Kristen McCormack and James Stock

No 25341, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The D4 RIN is the tradable compliance certificate for the biomass-based diesel mandate in the Renewable Fuel Standard (RFS). Understanding the price dynamics of the D4 RIN is important for understanding the RFS because its price sets a ceiling on the ethanol RIN (D6) and because some observers have suggested that RIN price fluctuations are too large to be explained by economic theory. We use option pricing theory to develop a model of the D4 RIN in terms of its economic fundamentals: the spread between the prices of biodiesel and petroleum diesel and the status of the biodiesel blenders’ tax credit. The resulting D4 fundamental price closely tracks actual D4 prices. We conclude that RIN price volatility arises because of the design of the RFS and intrinsic features of the US fuel supply system.

JEL-codes: C32 Q11 Q42 (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-agr and nep-ene
Note: EEE
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Citations: View citations in EconPapers (2)

Published as Scott H. Irwin & Kristen McCormack & James H. Stock, 2020. "The Price of Biodiesel RINs and Economic Fundamentals," American Journal of Agricultural Economics, vol 102(3), pages 734-752.

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