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The first essay develops and applies a structural, partial equilibrium model of United States biomass supply and demand. The aim is to examine the biomass price and expenditure effects of domestic biofuel policies. The results indicate that the cellulosic biofuel sub-mandate alone could increase biomass prices by an average of 50% to 100% over the baseline values. Biomass expenditures by sectors competing with biofuel producers increase by an average of 26% relative to the baseline suggesting those sectors cannot fully shift away from biomass energy sources. A sensitivity analysis focusing on supply response indicates that the results are not very sensitive to the supply elasticity. This study contributes to the literature by providing policymakers and other energy policy stakeholders with a forward looking analysis of potential policy effects on the U.S. biomass market. The second essay develops a similar type of model applied toward the domestic and international petroleum and petroleum products markets as well as the domestic biofuel market and the domestic light-duty vehicle sector. The goal is to investigate the impact of CAFE standards and alternative-fuel vehicle production incentives on the biofuel market and RFS compliance, in particular. The results suggest that holding CAFE standards at the 2010 level could significantly reduce the blendwall problem in the U.S. ethanol market. Furthermore, the alternative fuel production incentives appear to have only minimal effects. However, there is much uncertainty surrounding the appropriate level of automaker response to those incentives, and a sensitivity analysis indicates the model is fairly sensitive to the assumed level of response. The third essay highlights a few of the theories put forth regarding the expected price behavior of Renewable Identification Numbers (RINs). The theories are tested both observationally and empirically with a dataset containing daily RIN price observations going back to January 2009. The behavior does not always match expectations, although the exact causes remain uncertain. In addition, the information provided by RIN prices is used to test the implications of a binding renewable fuel standard (RFS) versus a non-binding RFS on the ethanol-gasoline price relationship. Cointegration tests provide some evidence that the relationship between conventional ethanol and gasoline prices at the wholesale level is weaker in the presence of a binding RFS.
This dissertation is composed of three chapters on policy evaluations in oligopoly markets. The first chapter compares effects of two main policies that support renewable energy development in the U.S. electricity market. The feed-in tariff (FIT) policy offers a guaranteed above-market price to renewable electricity firms by providing an extra government payment. The renewable energy certificate (REC) policy relies on the market mechanism. When associated with a renewable portfolio standard, the REC policy can provide a tool that rewards eligible renewable electricity firms financially. Using U.S. data, this chapter examines the effects of these two support policies in two multi-sector dynamic models, incorporating dynamic Nash equilibrium conditions between fossil fuel electricity firms and renewable electricity firms. The FIT policy results in a decline in production in the manufacturing sector and a fast change in consumer consumption behavior. Under the optimal feed-in tariff setting, investment in renewable energy is delayed. On the other hand, the REC policy ends with a stable increase in manufacturing production and household consumption. Green investment remains positive over time under the optimal renewable portfolio standard. The second chapter explores the dynamic impacts of trade policies in the international soybean market. In 2018, China responded to U.S. trade action by imposing a retaliatory tariff on U.S. commodity exports. Among the agricultural trade, soybeans account for the largest amount between United States and China. This chapter evaluates the counterfactual impacts of “Globalization” and “Trade War” on the soybean trade between two exporting countries, U.S. and Brazil, and one importing country, China, in a dynamic game model. This chapter introduces the state-owned enterprise behavior into the model. The results show that firms in U.S. and Brazil result in more soybean exports under the “Globalization” scenario. When there is a trade war between 2018 and 2021, firm in the U.S. exports much fewer soybeans to China because of the high tariff. The storage of the firm rises during the trade war to avoid profit loss. On the other hand, firm in Brazil benefits from the trade war and end up exporting more soybeans to China than usual. Our findings match the data during the trade war period. To explore the impacts of the trade in the international soybean market, we also build up a stochastic model and solve the feedback Nash equilibrium. The results show that firms tend to export more for the next period with higher initial storage levels when taking tariff uncertainty into account. The third chapter investigates the effects of demand shocks in the international corn market. Corn is the largest crop in terms of production and consumption in the United States. We introduce four exporters, U.S., Brazil, Argentina, and Ukraine, in a dynamic competitive storage model to explore the counterfactual effects under Globalization and High sustainability scenarios. We can also predict the impacts of short-term price shocks on the exports and storage in the four exporting countries. We conclude that U.S. and Argentina benefit more under “Globalization” than the other two countries. The change in U.S. ethanol demand induces the firms’ strategic behavior. With an increasing demand, firms stock up corns for future sale at a higher price. With a decreasing demand, firms deplete their stock at the beginning periods to avoid profit loss in future. In addition, the short-term price shock has different effects in four countries. We find that firms in U.S. and Brazil, with relatively higher storage amounts, are more sensitive to the price shock than Argentina and Ukraine, whose storage levels are less than 10% of their exports.
Throughout 2011, several pieces of legislation aimed at modifying U.S. ethanol policy have been proposed in Congress. The current policy debate focuses on whether to leave the mandate for corn and sugarcane based ethanol at 15 billion gallons per year or to lower it. This study assesses the effects of proposed ethanol legislation by evaluating both the historical effects of U.S. ethanol policy and approximating the outcomes of currently proposed legislation. Historical effects are assessed following Luchansky and Monks (2009) and lengthening the monthly data series to 1994 to 2009, further controlling for autocorrelation and adding explanatory variables to control for the ethanol blender's credit and environmental policies encouraging ethanol use. The study finds there was a structural break in the U.S. ethanol industry in 2002 and that the interaction of environmental policies and a 186 percent increase in the retail gasoline price from 2002 to 2008 drove the rapid expansion in the U.S. ethanol industry starting in 2002 (U.S. Energy Information Administration, 2011f). The effects of proposed legislation are assessed using an Equilibrium Displacement Model (EDM). The classic EDM is expanded to determine whether or not policy outcomes diverge when using a linear versus a non-linear approximation procedure. Results suggest outcomes of current policy proposals for U.S. ethanol producers and corn farmers are determined by the ethanol mandate. In contrast, policy prescription outcomes for ethanol consumers and foreign ethanol producers are jointly determined by the mandate, subsidy and tariff. However, no economically significant differences resulted from using the linear versus the non-linear approximation procedure. This study finds that the future of the U.S. ethanol industry will be jointly determined by the level of the U.S. ethanol mandate and long-run retail gasoline prices.
The U.S. ethanol industry is lobbying hard for an extension of existing ethanol import tariffs and blenders tax credits before they expire at the end of 2010. The purpose of this study is to examine the likely consequences on the U.S. ethanol industry, corn producers, taxpayers, fuel blenders, and fuel consumers if current policy is not extended. Impacts of different ethanol policies in both 2011 and 2014 were estimated. Estimates were obtained by developing a new stochastic model that calculates market-clearing prices for U.S. ethanol, Brazilian ethanol, and U.S. corn. The model is stochastic because market-clearing prices are calculated for 5,000 random draws of corn yields and wholesale gasoline prices. Key assumptions in this study are that the strong growth in flex-fuel vehicles in Brazil continues; intermediate ethanol blends with few restrictions are implemented in U.S. markets in 2014; U.S.
In its second volume, this book aims to link the academic research with development in the real world and provide a historical and institutional background that can enrich more formal research. The first section will include an assessment of the evolution and the state of the nascent second-generation biofuel as well as a perspective on the evolution of corn ethanol and sugarcane ethanol in Brazil. It will also include a historical and institutional background on the biofuel industry in Brazil that has global lessons, and later, provide a technical overview of major analytical tools used to assess the economic, land use and greenhouse gas implications of biofuel policies at a regional and global level. Additionally, the book analyzes the various drivers for land use change both at a micro-economic level and at a macro-economic level. It presents studies that apply regional and global economic models to examine the effects of biofuel policies in the US, EU and Brazil on regional and global land use, on food and fuel prices and greenhouse gas emissions. These papers illustrate the use of partial and general equilibrium modeling approaches to simulate the effects of various biofuel policies, and includes studies showing the effects of risk aversion, time preferences and liquidity constraints on farmers decision to grow energy crops for biofuel production. By presenting the tools of lifecycle analysis for assessing the direct greenhouse gas intensity of biofuels, this handbook investigates the types of indirect or market mediated effects that can offset or strengthen these direct effects. It will include tools to assess the direct and indirect effects of biofuel production on greenhouse gas emissions in the US and Brazil, and ultimately provide a comprehensive background to understand the state of biofuel in the present and how to analyze their implication.
The first essay of this dissertation uses a general equilibrium model of the U.S. economy to study the welfare implications of a biofuel blend mandate and consumption subsidy in the presence of pre-existing labor and fuel taxes. The tax interaction and revenue recycling effects are found to be significant relative to the overall costs of the policies and to previous partial equilibrium studies. I find empirically that the tax credit is welfare superior to the mandate for a given level of ethanol consumption, and this result is robust to the presence or absence of the labor tax. The second essay studies consumer behavior in durable goods markets. I extend a classic model of consumption with status-seeking preferences to incorporate a visible durable good stock with three attributes: quality, average item age, and stock size. "Newness" is an important feature of durable goods consumption, and I illustrate how the newness of a durable good stock, as captured by average item age, could be used as the status signal in a signaling equilibrium. I analyze Consumer Expenditure Survey data on the consumption of apparel goods which vary quasi-experimentally in visibility, and my empirical results suggest that newness and/or stock size may be used more than quality as a status signal, if consumers use apparel consumption to signal income. The third essay analyzes a model in which environmental regulation can potentially satisfy the "Porter hypothesis." I show theoretically how limited attention to waste production on the part of behaviorally-biased firm managers can result in internally sub-optimal production choices and the potential for "win-win" environmental regulation which increases net social benefits and also makes the firm itself better off.
Forty years of energy incompetence: villains, failures of leadership, and missed opportunities. Americans take for granted that when we flip a switch the light will go on, when we turn up the thermostat the room will get warm, and when we pull up to the pump gas will be plentiful and relatively cheap. In The End of Energy, Michael Graetz shows us that we have been living an energy delusion for forty years. Until the 1970s, we produced domestically all the oil we needed to run our power plants, heat our homes, and fuel our cars. Since then, we have had to import most of the oil we use, much of it from the Middle East. And we rely on an even dirtier fuel—coal—to produce half of our electricity. Graetz describes more than forty years of energy policy incompetence and argues that we must make better decisions for our energy future. Despite thousands of pages of energy legislation since the 1970s (passed by a Congress that tended to elevate narrow parochial interests over our national goals), Americans have never been asked to pay a price that reflects the real cost of the energy they consume. Until Americans face the facts about price, our energy incompetence will continue—and along with it the unraveling of our environment, security, and independence.