Optimal biofuel supply chain design under consumption mandates with renewable identification numbers

Xiaolei Wang, Yanfeng Ouyang, Hai Yang and Yun Bai

Transportation Research Part B: Methodological, 2013, vol. 57, issue C, 158-171

Abstract: The Renewable Identification Number (RIN) system is a tracking mechanism that enforces the U.S. Renewable Fuel Standard by monitoring obligated parties’ compliance with the biofuel consumption mandates. This paper incorporates the RIN system into the design of a biofuel supply chain that addresses independent decisions of non-cooperative farmers, biofuel manufacturers, and blenders. Game-theoretic models are developed to examine the impacts of the RIN system on individual stakeholders’ decisions (e.g., on farmland use, bio-refinery investment, biofuel production) and the competition between food and biofuel industries, in both a perfectly competitive scenario and a monopoly scenario. For the perfectly competitive scenario, Nash equilibrium can be obtained by solving a convex optimization problem. For the monopoly scenario, a bi-level Stackelberg leader–follower model is developed, from which we found that a rigid mandate on blenders may suppress the total biofuel production. To avoid such unintended consequences, a relaxed unit-RIN based penalty scheme is proposed and shown to improve the overall biofuel supply chain performance. Managerial insights are drawn from a numerical case study for the state of Illinois.

Keywords: Supply chain network; Biofuel; Spatial equilibrium; Tradable credits; MPEC (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (14)

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DOI: 10.1016/j.trb.2013.07.008

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