Analysis of a Market for Tradable Credits, Policy Uncertainty Effects on Investment Decisions, and the Potential to Supply a Renewable Aviation Fuel Industry with an Experimental Industrial Oilseed
Markel, E. L.  2017.  Ph.D. Dissertation.

Abstract:
This research is aligned with identifying barriers throughout the alternative jet-fuel supply chain. Prices are analyzed in the market for tradable credits known as renewable identification numbers (RINs). The RIN market is a key policy instrument used in the implementation of the renewable fuel standard (RFS). The program is highly complex and drivers of RIN price are not always clear. RIN prices also exhibit multiple regimes where the price of nested RINs converge. Therefore, a smooth transition autoregressive model is employed to examine drivers of RIN price and to identify drivers of price regime change. Through research in the RIN market and renewable fuel standard, a common theme of policy uncertainty is identified in the literature. A two-variable real option model is utilized to examine the effect of policy uncertainty on the decision to invest in new production of second-generation biofuel. This represents the first attempt to isolate general market uncertainty from policy uncertainty in the biofuel producerís optimal investment decision. RFS policy uncertainty adds to the aggregate uncertainty faced by the biofuel producer and may be impeding the original intentions of the policy program. Finally, an experimental biofuel feedstock and its potential to supply an alternative jet-fuel industry is considered. The experimental feedstock is known as pennycress, which produces an industrial oilseed. Using a partial equilibrium model of the agricultural sector, supply curves are simulated and its impacts on the agricultural sector are investigated.