Going Beyond the Blend Wall: Policy Incentives for Fuel Consumers to Supplement the Renewable Fuel Standard

Jia Zhong, Madhu Khanna and Xiaoguang Chen

No 258483, 2017 Annual Meeting, July 30-August 1, Chicago, Illinois from Agricultural and Applied Economics Association

Abstract: The direct incentive from the renewable fuel standard for fuel consumers is limited while the penetration of flexible fuel vehicles (FFV) stays stagnated. To study alternative policy incentives and its mechanism targeted at consumer to supplement the standards from the demand side, we develop a framework of dynamic economic partial equilibrium model. We find that under RFS 2022 schedule, explicitly pronounced cross-subsidization on both fuels (yearly average $0.41/gge tax on preblended fuel and $2.35/gge subsidy on ethanol) and vehicles (average $2.8k tax on CV and $2.4k purchase subsidy on FFV) are needed for consumers to switch to higher ethanol blends and FFV. The retail E100 is priced lower than its energy content as with E10 to the extent to attract FFV users consume higher blends and stimulate FFV purchase while offset the drawbacks of the higher vehicle costs and its less fuel efficiency. A lengthened policy not only alleviates the pricing strategies pressure but also reduces the welfare loss. Improved competitiveness in sales price is more effective in benefiting the vehicle drivers with less feebate intensity.

Keywords: Resource/Energy Economics and Policy; Demand and Price Analysis; Land Economics/Use (search for similar items in EconPapers)
Date: 2017-07-03
New Economics Papers: this item is included in nep-ene, nep-reg and nep-tre
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea17:258483

DOI: 10.22004/ag.econ.258483

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