Miao, Ruiqing; Hennessy, David A.; Babcock, Bruce A.

American Journal of Agricultural Economics (February 2012)

We develop a conceptual model to study the impact of mandate policies on stimulating investment in cellulosic biofuel refineries. In a two-period framework, we compare the first-period investment level (FIL) under three scenarios: laissez-faire, non-waivable mandate (NWM) policy, and waivable mandate (WM) policy. Results show that when plant-level marginal costs are increasing then both NWM policy and WM policy may stimulate FIL. The WM policy has a smaller impact than does the NWM policy. When the plant-level marginal costs are constants, however, WM policy does not increase FIL but does increase the expected profit of more efficient investors.

JEL Classification: D24, L52, Q48

Keywords: Investment, cellulosic biofuels, Renewable Identification Numbers, waivable mandate.