Policy Uncertainty and the US Ethanol Industry

Jason P. H. Jones, Zidong Wang, Bruce McCarl and Minglu Wang
Additional contact information
Jason P. H. Jones: Resource, Energy, and Environmental Economics, RTI International, RTP, NC 27709, USA
Minglu Wang: Department of Agricultural Economics, Texas A&M University, College Station, TX 77840, USA

Sustainability, 2017, vol. 9, issue 11, 1-14

Abstract: The Renewable Fuel Standard (RFS2), as implemented, has introduced uncertainty into US ethanol producers and the supporting commodity market. First, the fixed mandate for what is mainly cornstarch-based ethanol has increased feedstock price volatility and exerts a general effect across the agricultural sector. Second, the large discrepancy between the original Energy Independence and Security Act (EISA) intentions and the actual RFS2 implementation for some fuel classes has increased the investment uncertainty facing investors in biofuel production, distribution, and consumption. Here we discuss and analyze the sources of uncertainty and evaluate the effect of potential RFS2 adjustments as they influence these uncertainties. This includes the use of a flexible, production dependent mandate on corn starch ethanol. We find that a flexible mandate on cornstarch ethanol relaxed during drought could significantly reduce commodity price spikes and alleviate the decline of livestock production in cases of feedstock production shortfalls, but it would increase the risk for ethanol investors.

Keywords: policy uncertainty; market stability; renewable fuel standard; sector modeling; drought (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/9/11/2056/pdf (application/pdf)
https://www.mdpi.com/2071-1050/9/11/2056/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:9:y:2017:i:11:p:2056-:d:118140

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().