Scenarios for Biofuel Producers in a Deregulated Market

37 Pages Posted: 28 Aug 2014 Last revised: 27 Nov 2015

Hamed Ghoddusi

Stevens Institute of Technology - School of Business

Date Written: November 25, 2015

Abstract

In the deregulated fuels market, biofuels and fossil fuels are close competitors and substitutes. Thus, biofuel producers are subject to risks due to volatile crude oil and biofuels feedstock prices. This paper proposes a two-sector fuel market with competing oil refinery and biofuel sectors, calibrated for cases of gasoline/ethanol and diesel/biodiesel. The model suggests that ethanol and biodiesel plants will shut-down approximately 40% and 20% of the time, respectively. The skewness of profits is -0.32, in contrast to the 0.91 of feedstock prices. Several firm-level and policy-level options to manage crude oil price risks for biofuel producers are discussed further.

Keywords: Price Risks, Biofuels Policies, Risk Management, Free Cash-Flow

JEL Classification: O13, Q42, G32

Suggested Citation

Ghoddusi, Hamed, Scenarios for Biofuel Producers in a Deregulated Market (November 25, 2015). Howe School Research Paper No. 2014-41. Available at SSRN: https://ssrn.com/abstract=2487836 or http://dx.doi.org/10.2139/ssrn.2487836

Hamed Ghoddusi (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

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

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