Demystifying RINs: A Partial Equilibrium Model of U.S. Biofuels Markets

We explore four fundamental channels of mandate compliance available under current U.S. bio- fuels policy: increased ethanol blending through E10 or E85, increased biodiesel blending, and a reduction in the overall compliance base. Simulation results highlight the interplay and varying importance of these channels at increasing blend mandate levels. In addition, we establish how RIN prices are formed: The value of a RIN in equilibrium is shown to re ect the marginal cost of compensating the blender for employing one additional ethanol-equivalent unit of biofuel. This contrasts with existing research equating the price of RINs to the gap between free-market ethanol supply and demand at the mandate level. We demonstrate the importance of this distinction in case of binding demand side infrastructure constraints such as the ethanol blend wall: as percent- age blend mandates increase, the market for low-ethanol blends may contract in order to reduce the overall compliance base. This has important implications for implied ethanol demand in the economy.


Issue Date:
2016-09
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/250034
Total Pages:
23
JEL Codes:
H23; Q21; Q42
Series Statement:
WP
16-14




 Record created 2017-04-01, last modified 2017-08-29

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