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

Ruiqing Miao, David Hennessy and Bruce Babcock

Center for Agricultural and Rural Development (CARD) Publications from Center for Agricultural and Rural Development (CARD) at Iowa State University

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. Key words: cellulosic biofuels, investment, Renewable Identification Numbers, waivable mandate

JEL-codes: D24 L52 Q48 (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-agr and nep-ene
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Citations: View citations in EconPapers (2)

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