Testimony Before the U.S. House Committee onEnergy and Commerce Subcommittee on Environment

My testimony focuses on the purpose and operation of Renewable Identification Numbers, better known as RINs, as the compliance mechanism for meeting the Renewable Fuel Standard (RFS) mandates. In particular, my remarks emphasize RINs\u27 accounting and economic role under the RFS, as well as summarize the empirical evidence on RIN price determinants and their impact on downstream fuel prices. I also address the potential effects of certain proposed changes to the RFS on RIN prices, and their implications for future biofuel use in the United States

E15 and E85 Demand Under RIN Price Caps and an RVP Waiver

•A leading Renewable Fuel Standard reform proposal considered by policymakers would allow E15 (fuel containing 15% ethanol) sales throughout the year and implement a cap on D6 RIN prices between $0.10 to$0.20/RIN. •While year-round sales of E15 would encourage retailers to sell the fuel, capping D6 RIN prices would reduce consumption of E15 and E85. •A cap on D6 RIN prices between $0.10/gal to$0.20/gal would likely reduce the effective ethanol mandate from 15 billion gallons to about 14.3 billion gallons in 2018. •Unless increased ethanol exports compensate for the reduced mandate, corn prices woulddecrease under the proposal’s D6 RIN price cap

Sized-based Regulation and Environmental Quality: Evidence from the US Livestock Industry

The growing prevalence of animal feeding operations (AFOs) in the United States raises concerns among the public and regulators about their impact on local environmental quality. This paper studies the effects of Clean Water Act regulations that targeted water pollution from the largest hog AFOs. We compile a novel dataset linking historical regulatory records of AFOs in Iowa to downstream surface water pollution monitors. The regulation decreased ammonia concentrations downstream of large AFOs by 6 to 9 percentage points and modestly improved dissolved oxygen concentrations, but did not reduce phosphorus concentrations. Pollution reductions are largest during heavy precipitation months, consistent with the regulations reducing on-site spills and nutrient runoff from local fields. However, we find that pollution increased downstream from mid-sized AFOs, which were exempt from the regulations. Given the growth in the number of mid-sized facilities relative to large AFOs, we estimate that the regulation had little discernible impact on overall water quality

Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard

DTRT13-G-UTC29Citation: Lade, Gabriel E., C.-Y. Cynthia Lin Lawell, and Aaron Smith. (Draft 2017) Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard.The Renewable Fuel Standard mandates large increases in U.S. biofuel consumption and is implemented using tradable compliance credits known as RINs. In early 2013, RIN prices soared, causing the regulator to propose reducing future mandates. We estimate empirically the effect of three \u2018policy shocks\u2019 that reduced the expected mandates in 2013. We find that the largest of these shocks decreased the value of the fuel industry\u2019s 2013 compliance obligation by $7 billion. We then study the effects of the shocks on commodity markets and the market value of publicly traded biofuel firms. Results show that the burden of the mandate reductions fell primarily on advanced biofuel firms and commodity markets of the marginal compliance biofuel. We argue that the policy shocks reduced the incentive to invest in the technologies required to meet the future objectives of the RFS, and discuss alternative policy designs to address the problems that arose in 2013

The Design of Renewable Fuel Mandates and Cost Containment Mechanisms

Citation: Lade, G.E., Lin Lawell, CY.C. The Design of Renewable Fuel Mandates and Cost Containment Mechanisms. Environ Resource Econ 79, 213\u2013247 (2021). https://doi.org/10.1007/s10640-021-00558-wPolicies to reduce greenhouse gas emissions from transportation fuels often take the form of renewable fuel mandates rather than taxes or cap-and-trade programs. Delays in the development and deployment of new technologies when binding mandates exist for their use may lead to situations with high compliance costs

The Design and Economics of Low Carbon Fuel Standards

Citation: Lade, Gabriel E., and C.-Y. Cynthia Lin Lawell. (2015). The design and economics of low carbon fuel standards. Research in Transportation Economics, 52, 91-99. https://doi.org/10.1016/j.retrec.2015.10.009Low carbon fuel standards (LCFS) are increasingly common policy tools used to decrease emissions and increase the penetration of renewable energy technologies in the transportation sector. In this paper, we discuss important design elements of the policy, and provide a background on prominent policies that are currently enacted or proposed

Mandating green: On the Design of Renewable Fuel Policies and Cost Containment Mechanisms

Policymakers typically favor renewable fuel mandates over taxes and cap and trade programs to reduce greenhouse gas emissions from the transportation sector. Because of delays in the development of commercially viable renewable fuels and important constraints on their use and distribution, fuel mandates are susceptible to sudden increases in compliance costs as policies become more stringent. The authors study the effects and efficiency of two fuel mandates, a renewable share mandate and a carbon intensity standard, as well as the effects of two cost containment provisions, a credit window price and a renewable fuel multiplier. The authors show using a numerical model of the US fuel market that when the mandates are set optimally, they can lead to modest efficiency gains over business as usual; however, when combined optimally with a credit window price, the efficiency of both mandates increases substantially. In contrast, optimally combining a mandate with a renewable fuel multiplier that indirectly relaxes the standard results in only modest efficiency gains over the optimal mandates alone.View the NCST Project Webpag

Mandating green: On the Design of Renewable Fuel Policies and Cost Containment Mechanisms

Policymakers typically favor renewable fuel mandates over taxes and cap and trade programs to reduce greenhouse gas emissions from the transportation sector. Because of delays in the development of commercially viable renewable fuels and important constraints on their use and distribution, fuel mandates are susceptible to sudden increases in compliance costs as policies become more stringent. The authors study the effects and efficiency of two fuel mandates, a renewable share mandate and a carbon intensity standard, as well as the effects of two cost containment provisions, a credit window price and a renewable fuel multiplier. The authors show using a numerical model of the US fuel market that when the mandates are set optimally, they can lead to modest efficiency gains over business as usual; however, when combined optimally with a credit window price, the efficiency of both mandates increases substantially. In contrast, optimally combining a mandate with a renewable fuel multiplier that indirectly relaxes the standard results in only modest efficiency gains over the optimal mandates alone.View the NCST Project Webpag

Geographical Indications and Welfare: Evidence from the US Wine Market

A systematic component of wine quality is believed to depend on the geo-climatic factors of its production conditions. This belief has long been a motivation for the development of geographical indications for wines. In the United States, American Viticulture Areas (AVAs) represent the most common geographic factor firms use to differentiate their products. In this paper, we estimate a discrete choice model of US wine demand to study the market and welfare impact of AVAs. Specifically, we develop a two-level nested logit choice model, featuring many wine products and characteristics—including wine type, brands, and varietals, in addition to AVAs—and estimate it using Nielsen Consumer Panel data over the 2007–2019 period. We find significant welfare gains from AVA information on wine labels. Over the period of interest, the welfare gain attributable to AVAs is estimated at about $2.37 billion, with wine producers and retailers capturing approximately 80% of this surplus. Approximately 90% of consumer welfare gains are due to product differentiation and increased variety, with the remaining gains due to price decreases resulting from increased product competition.JEL Codes: D82, O34, Q11, Q1

Ex Post Costs and Renewable Identification Number (RIN) Prices under the Renewable Fuel Standard

DTRT13-G-UTC29Citation: Lade, Gabriel E., C.-Y. Cynthia Lin, and Aaron Smith (2015) Ex Post Costs and Renewable Identification Number (RIN) Prices under the Renewable Fuel Standard Resources for the Future Discussion Paper 15-22.We critically review the Environmental Protection Agency\u2019s (EPA) assessment of the costs and benefits of the Renewable Fuel Standard (RFS2) as summarized in its regulatory impact analysis (RIA). We focus particularly on EPA\u2019s methods used to calculate the costs of the policy on the US fuel market. We compare EPA\u2019s ex ante cost and benefit estimates to measures of ex post costs implied by the price of compliance credits under the policy. Overall, we find that the agency\u2019s assessment was inadequate. In spite of, or perhaps because of, the detailed and complex analysis underlying the RIA, EPA overlooked several fundamental factors. We conclude by recommending a simplification of the analysis used in RIAs, as well as the use of \u201cstress tests\u201d in RIAs to ensure that programs like the RFS2 are designed in ways that can manage high compliance cost scenarios