Demystifying RINs: A partial equilibrium model of U.S. biofuel markets

Christina Korting and David Just

Energy Economics, 2017, vol. 64, issue C, 353-362

Abstract: We explore four fundamental channels of mandate compliance available under current U.S. biofuel 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 reflect 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 ethanol supply and demand evaluated 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 percentage 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.

Keywords: Biofuels; Renewable Fuel Standards; Blend mandate (search for similar items in EconPapers)
JEL-codes: H23 Q21 Q42 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Demystifying RINs: A Partial Equilibrium Model of U.S. Biofuels Markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:64:y:2017:i:c:p:353-362

DOI: 10.1016/j.eneco.2017.04.004

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