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

Author

Listed:
  • Zhong, Jia
  • Khanna, Madhu
  • Chen, Xiaoguang
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.

Suggested Citation

  • Zhong, Jia & Khanna, Madhu & Chen, Xiaoguang, 2017. "Going Beyond the Blend Wall: Policy Incentives for Fuel Consumers to Supplement the Renewable Fuel Standard," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258483, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea17:258483
    DOI: 10.22004/ag.econ.258483
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    References listed on IDEAS

    as
    1. Gabriel E. Lade & C.-Y. Cynthia Lin Lawell, 2021. "The Design of Renewable Fuel Mandates and Cost Containment Mechanisms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(2), pages 213-247, June.
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    4. Bruce A. Babcock, 2013. "RFS Compliance Costs and Incentives to Invest in Ethanol Infrastructure," Center for Agricultural and Rural Development (CARD) Publications 13-pb13, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    5. Jingbo Cui & Harvey Lapan & GianCarlo Moschini & Joseph Cooper, 2011. "Welfare Impacts of Alternative Biofuel and Energy Policies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(5), pages 1235-1256.
    6. Meghan R. Busse & Christopher R. Knittel & Florian Zettelmeyer, 2013. "Are Consumers Myopic? Evidence from New and Used Car Purchases," American Economic Review, American Economic Association, vol. 103(1), pages 220-256, February.
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    10. Laura J Vimmerstedt & Brian Bush & Steve Peterson, 2012. "Ethanol Distribution, Dispensing, and Use: Analysis of a Portion of the Biomass-to-Biofuels Supply Chain Using System Dynamics," PLOS ONE, Public Library of Science, vol. 7(5), pages 1-18, May.
    11. Gabriel E Lade & C -Y Cynthia Lin Lawell & Aaron Smith, 2018. "Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(3), pages 707-731.
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    Keywords

    Resource/Energy Economics and Policy; Demand and Price Analysis; Land Economics/Use;
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