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Sustainability 2017, 9(11), 2056; doi:10.3390/su9112056

Policy Uncertainty and the US Ethanol Industry

1
Resource, Energy, and Environmental Economics, RTI International, RTP, NC 27709, USA
2
Department of Agricultural Economics, Texas A&M University, College Station, TX 77840, USA
*
Author to whom correspondence should be addressed.
Received: 26 September 2017 / Revised: 4 November 2017 / Accepted: 7 November 2017 / Published: 9 November 2017
(This article belongs to the Special Issue Energy Security and Sustainability)
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Abstract

The Renewable Fuel Standard (RFS2), as implemented, has introduced uncertainty into US ethanol producers and the supporting commodity market. First, the fixed mandate for what is mainly cornstarch-based ethanol has increased feedstock price volatility and exerts a general effect across the agricultural sector. Second, the large discrepancy between the original Energy Independence and Security Act (EISA) intentions and the actual RFS2 implementation for some fuel classes has increased the investment uncertainty facing investors in biofuel production, distribution, and consumption. Here we discuss and analyze the sources of uncertainty and evaluate the effect of potential RFS2 adjustments as they influence these uncertainties. This includes the use of a flexible, production dependent mandate on corn starch ethanol. We find that a flexible mandate on cornstarch ethanol relaxed during drought could significantly reduce commodity price spikes and alleviate the decline of livestock production in cases of feedstock production shortfalls, but it would increase the risk for ethanol investors. View Full-Text
Keywords: policy uncertainty; market stability; renewable fuel standard; sector modeling; drought policy uncertainty; market stability; renewable fuel standard; sector modeling; drought
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Jones, J.P.H.; Wang, Z.M.; McCarl, B.A.; Wang, M. Policy Uncertainty and the US Ethanol Industry. Sustainability 2017, 9, 2056.

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