The Renewable Fuel Standard requires US oil refineries to blend biofuels into domestic transportation fuels. To ensure that compliance costs under this mandate don’t disproportionately affect any subset of refiners, the regulation includes a compliance credit program, whereby refiners blending excess biofuels can sell their excess compliance to refiners that do not blend enough. The price of these credits can be interpreted as the marginal cost of compliance with the mandate. I measure how changes in the prices of these compliance credits affect the stock prices of oil refining firms. There are a number of ways one might expect these compliance credits to affect firms. Much economic research finds that oil refiners are able to pass the costs of RFS compliance to consumers quite easily, suggesting that changes in the compliance cost should not affect firms’ value at all. Large refiners tend to claim that the RFS imposes a large cost and drags down their profits. Perhaps the most interesting claim is that of the “merchant refiners”—generally small refiners who do not own the infrastructure to blend biofuels on their own and are thus forced to comply with the mandate completely with compliance credits. They claim that larger refiners are able to hoard the credits and sell them for windfall profits at the expense of the merchant refiners. My results indicate that positive shocks in compliance credit prices are associated with stock losses only among large, non-merchant refiners, and that even this association is small. This discredits the claims of merchant refiners, but opens a new puzzle: why are large, integrated refiners the only ones affected? I conclude my paper with a number of potential explanations, though I am not able to test between them using my data
