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An Economic Evaluation of the Renewable Fuel Standard (RFS) Biofuel Program: An Industrial Policy Approach

28 Pages Posted: 2 Aug 2009 Last revised: 18 May 2014

Jay P. Kesan

University of Illinois College of Law

Atsushi Ohyama

Hokkaido University - Graduate School of Economics & Business Administration

Hsiao-Shan Yang

University of Illinois at Urbana-Champaign

Date Written: August 19, 2009

Abstract

The American public realizes the growing scarcity of petroleum and the desirability of the development of alternative fuels. In 2005 and 2007, the U.S. Congress passed laws that aim to promote the consumption of renewable biofuels. The Environmental Protection Agency then designed the Renewable Fuel Standard Program (RFS) that mandates a certain volume of renewable biofuel consumption over the period of 2006-2022. The current policy discussions and analyses regarding the RFS have focused heavily on environmental issues, but we know very little about the U.S. ethanol industry itself. In this study, we examine the potential impact of the RFS on the development process of the U.S. ethanol industry from the viewpoint of industrial policy using ethanol plant-level data. Our analysis suggests that the RFS program contributes to increasing economies of scale and improving competition level among existing firms. The successful development of the U.S. ethanol industry hinges on this factor. The ethanol market is expanding through new plant construction, and the increased competition will let ethanol emerge as a viable fuel alternative to conventional fossil fuel.

Keywords: Biofuel regulation, Innovation, Technological progress

Suggested Citation

Kesan, Jay P. and Ohyama, Atsushi and Yang, Hsiao-Shan, An Economic Evaluation of the Renewable Fuel Standard (RFS) Biofuel Program: An Industrial Policy Approach (August 19, 2009). U Illinois Law & Economics Research Paper No. LE09-035; Illinois Public Law Research Paper No. 09-11. Available at SSRN: https://ssrn.com/abstract=1442628 or http://dx.doi.org/10.2139/ssrn.1442628

Jay P. Kesan (Contact Author)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States
217-333-7887 (Phone)
217-244-1478 (Fax)

HOME PAGE: http://www.jaykesan.com

Atsushi Ohyama

Hokkaido University - Graduate School of Economics & Business Administration ( email )

Kita-ku Kita 9 Nishi 7
Sapporo, Hokkaido, 060
Japan

Hsiao-Shan Yang

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

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