C.-Y. Cynthia Lin Lawell

Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard

&NA; The Renewable Fuel Standard mandates large increases in U.S. biofuel consumption and is implemented using tradable compliance credits known as RINs. In early 2013, RIN prices soared, causing the regulator to propose reducing future mandates. We estimate empirically the effect of three “policy shocks” that reduced the expected mandates in 2013. We find that the largest of these shocks decreased the value of the fuel industrys 2013 compliance obligation by

The Economics of Agricultural Groundwater Management Institutions: The Case of California

7 billion. We then study the effects of the shocks on commodity markets and the market value of publicly‐traded biofuel firms. Results show that the burden of the mandate reductions fell primarily on advanced biofuel firms and commodity markets of the marginal compliance biofuel. We argue that the policy shocks reduced the incentive to invest in the technologies required to meet the future objectives of the RFS, and discuss alternative policy designs to address the problems that arose in 2013.

Ex Post Costs and Renewable Identification Number (RIN) Prices Under the Renewable Fuel Standard

The sustainable management of groundwater resources for use in agriculture is a critical issue in California and globally. Many of the world’s most productive agricultural basins depend on groundwater and have experienced declines in water table levels. The food consumers eat, the farmers who produce that food, and the local economies supporting that production are all affected by the availability of groundwater. Increasing competition for water from cities and environmental needs, as well as concerns about future climate variability and more frequent droughts, has caused policy-makers to look for ways to decrease the consumptive use of water. When designing groundwater management policies and institutions, it is important to consider any possible perverse consequences from the policy. In this paper, we discuss the economics of sustainable agricultural groundwater management institutions, including the possible perverse consequences of incentive-based agricultural groundwater conservation programs; the importance of dynamic management, conjunctive management, and spatial management; and property rights.

A review of control options and externalities for verticillium wilts

We critically review the Environmental Protection Agency’s (EPA) assessment of the costs and benefits of the Renewable Fuel Standard (RFS2) as summarized in its regulatory impact analysis (RIA). We focus particularly on EPA’s methods used to calculate the costs of the policy on the US fuel market. We compare EPA’s ex ante cost and benefit estimates to measures of ex post costs implied by the price of compliance credits under the policy. Overall, we find that the agency’s assessment was inadequate. In spite of, or perhaps because of, the detailed and complex analysis underlying the RIA, EPA overlooked several fundamental factors. We conclude by recommending a simplification of the analysis used in RIAs, as well as the use of “stress tests” in RIAs to ensure that programs like the RFS2 are designed in ways that can manage high compliance cost scenarios.

Designing Climate Policy: Lessons from the Renewable Fuel Standard and the Blend Wall

Plant pathogens migrate to new regions through human activities such as trade, where they may establish themselves and cause disease on agriculturally important crops. Verticillium wilt of lettuce, caused by Verticillium dahliae, is a soilborne fungus that was introduced to coastal California via infested spinach seeds. It has caused significant losses for lettuce growers. Once introduced, Verticillium wilt could be managed by fumigating with methyl bromide and chloropicrin, but this option is no longer available. Growers can also manage the disease by planting broccoli or not planting spinach. These control options require long-term investments for future gain. Verticillium wilt can also be prevented or controlled by testing and providing spinach seeds with little or no V. dahliae infestation. However, seed companies have been reluctant to test or clean spinach seeds, as spinach crops are not affected by Verticillium wilt. Thus, available control options are affected by externalities. Renters and other producers with short time horizons will not undertake long-term investments and seed companies do not take into account the effect of their decision not to test on lettuce producers. We review the literature on the economics of managing crop disease; discuss the economics of managing Verticillium wilt; and review the recent research on the externalities that arise with short-term growers, and between seed companies and growers due to Verticillium wilt. An externality arises whenever the actions of one individual or firm affects the payoffs to another individual or firm not involved in a specific transaction. These externalities have important implications for the management of Verticillium wilt and, more broadly, for the management of migratory pathogens and the diseases they cause in agriculture in general. This review is of interest to policy-makers, the producers, marketers, seed companies, and researchers.

The Effects of Urban Public Transit Investment on Traffic Congestion and Air Quality

Many policies mandate renewable energy production to combat global climate change. These policies often differ significantly from first-best policy prescriptions. Among the largest renewable energy mandates enacted to date is the Renewable Fuel Standard (RFS), which mandates biofuel consumption far beyond what is feasible with current technology and infrastructure. We critically review the methods used by the Environmental Protection Agency to project near- and long-term compliance costs under the RFS, and draw lessons from the RFS experience to date that would improve the program’s efficiency. The lessons are meant to inform both future RFS rulemaking and the design of future climate policies. We draw two lessons specific to the RFS. First, incorporate uncertainty into rulemaking; second, implement multi-year rules. Multi-year rulemaking allows for longer periods between major regulatory decisions and sends greater certainty to markets. We also provide two more general recommendations: tie waiver authority to compliance costs or include cost containment provisions, and fund research and development of new technologies directly rather than mandating them. Future technological advancement is uncertain, and mandating new technologies has proven to be largely ineffective to date, particularly in fuel markets.

Market Power in Nonrenewable Resource Markets: An Empirical Dynamic Model

Traffic congestion is ubiquitous across urban roadways, and the adverse health effects accompanying deteriorating air quality are an ongoing concern. Beyond these local effects, transportation is also a major contributor of greenhouse gas emissions and is thus a significant element of the climate change debate. A contentious issue currently confronting transportation analysts and policy-makers is what the effects of public transit investment on traffic congestion and on air quality are and therefore what the appropriate level of public transit investment should be. While public transit receives plenty of political support for its “green” reputation and its contribution to sustainability, there have been relatively few studies examining the ex post–effects of public transit investment on traffic congestion or air quality. In this chapter, we review our theoretical and empirical research on the effects of public transit investment on congestion, the demand for automobile travel, and air quality.

Economic Efficiency and Optimal Contractual Design of Iraq's Oil Service Contracts

This paper estimates a dynamic model of the world markets for five nonrenewable resources over the period 1970–2004 and tests for market power in each of these markets. The results show that during the study period the world markets for copper, iron, lead, tin, and zinc were characterized by oligopolistic behavior. Our model enables us to estimate an upper bound for the price elasticity of demand for those markets exhibiting market power. We find that the demand for copper, iron, lead, and zinc is relatively inelastic, while the demand for tin is extremely elastic. (JEL Q31)

Dynamic Structural Econometric Modeling of the Ethanol Industry

Iraq’s recent service contracts with international oil companies, known as technical service contracts (TSC), exemplify the increasing reliance of oil producing countries on service contracts. In this study, we examine the economic efficiency of Iraq’s Rumaila producing field technical service contract via a dynamic optimization model of oil production and well drilling. A comparison of what our dynamic optimization model recommends as the optimal production profile with the most likely scenario to be realized suggests that the Rumaila producing field technical service contract could result in economically inefficient outcomes, with the loss in profit as high as

Public transit investment and sustainable transportation: A review of studies of transit's impact on traffic congestion and air quality

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