Investment in Cellulosic Biofuel Refineries: Do Renewable Identification Numbers Matter?

Ruiqing Miao, David A. Hennessy and Bruce A. Babcock

No 94001, Hebrew University of Jerusalem Archive from Hebrew University of Jerusalem

Abstract: A floor and trade policy in Renewable Identification Numbers (RINs) is the market mechanism by which U.S. biofuel consumption mandates are met. A conceptual model is developed to study the impact of RINs on stimulating investment in cellulosic biofuel refineries. In a two-period framework, we compare the first-period investment level (FIL) in three scenarios: (1) laissez-faire, (2) RINs under a nonwaivable mandate (NWM) policy, and (3) RINs under a waivable mandate (WM) policy. Results show that when firm-level marginal costs are constants, then RINs under WM policy do not stimulate FIL but they do increase the expected profit of more efficient investors. When firm-level marginal costs are not constants, however, RINs under WM policy stimulate FIL. RINs under NWM policy may or may not stimulate FIL, depending on the distribution of second-period cellulosic biofuel prices and on firm-level marginal costs.

Keywords: Crop Production/Industries; Resource/Energy Economics and Policy; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 46
Date: 2010-09
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Persistent link: https://EconPapers.repec.org/RePEc:ags:hebarc:94001

DOI: 10.22004/ag.econ.94001

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