Three essays in U.S. biofuels markets

Gerveni, Maria

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https://hdl.handle.net/2142/130105 Copy

Description

Title

Three essays in U.S. biofuels markets

Author(s)

Gerveni, Maria

Issue Date

2025-07-17

Director of Research (if dissertation) or Advisor (if thesis)

Irwin, Scott H.

Doctoral Committee Chair(s)

Irwin, Scott H.

Committee Member(s)

• Serra, Teresa
• Schnitkey, Gary
• Hubbs, Todd

Department of Study

Agr & Consumer Economics

Discipline

Agricultural & Applied Econ

Degree Granting Institution

University of Illinois Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

biofuels, ethanol, biodiesel, renewable diesel, RINs, price connectedness, spillovers

Abstract

This dissertation consists of three chapters that collectively provide a comprehensive framework for understanding price dynamics, market interconnections, and regulatory mechanisms in U.S. biofuel markets. The dissertation investigates the complex relationships between ethanol, biodiesel, petroleum diesel markets, and the Renewable Identification Number (RIN) compliance system, all critical components of the Renewable Fuel Standard (RFS) policy framework. By quantifying price connectedness across different biofuel markets, developing an innovative methodology for estimating the RINs bank and estimating the relationship of RIN prices to the ratio of the RIN bank size relative to the annual RVOs, this dissertation contributes valuable insights for market participants, policymakers, and researchers seeking to navigate the evolving landscape of renewable energy markets. Each chapter builds upon the others, moving from ethanol terminal markets to biodiesel and petroleum diesel relationships, and finally to the regulatory mechanism (RINs) that binds these markets together under the RFS. Through this structure, the dissertation reveals how information flows across regional markets, how shocks propagate through supply chains, and how compliance mechanisms function across time, providing a multidimensional view of the U.S. biofuels sector. The first chapter (joint work with Teresa Serra, Scott H. Irwin and Todd Hubbs) focuses on Price Connectedness in U.S. Ethanol Terminal Markets. This essay shows, for the first time, the degree of price connectedness across the major regional ethanol markets in the U.S. Connectedness measures are based on forecast error variance decompositions that inform which prices drive system dynamics. We pay special attention to volatility spillovers to and from Chicago, as it is equipped with one of the largest terminals in the U.S. and is widely regarded as the center of ethanol price discovery in the country. Ethanol prices in the Chicago terminal electronic trading platform are also suspected of being manipulated over the 2017‐2019 period. We use Diebold and Yilmaz (2012 and 2014) and a rolling window approach to study the dynamics of price connectedness over time. Using daily data from 2013 to the beginning of 2021, we find that Chicago is the market that generates the most innovations to other market prices. In contrast, Chicago receives the least amount of innovations from all other markets, placing Chicago at the center of price dynamics. We find that price connectedness measures are correlated with market fundamentals, policy, and concentration in the Chicago terminal electronic trading platform, with the latter being associated to an increase in the relevance of Chicago as a central market. The second chapter (joint work with Scott H. Irwin and Teresa Serra) focuses on Price Connectedness in U.S. Biodiesel and Petroleum Diesel Markets. This essay quantifies price connectedness across U.S. biodiesel plant-level and wholesale markets, as well as between biodiesel and petroleum diesel wholesale markets. Using Diebold-Yilmaz (2012, 2014) connectedness measures and a rolling window approach, we examine how price connectedness evolves across regions and supply chain levels. We find strong intra-supply chain connectedness within biodiesel markets and cross-market connectedness between biodiesel and petroleum diesel wholesale markets. Connectedness declines sharply post-2022, coinciding with the renewable diesel boom. Regression results show that rising renewable diesel production reduces price connectedness by displacing both biodiesel and petroleum diesel, while production levels, feedstock costs, net imports, and policy support are positively correlated with connectedness. The third chapter (joint work with Scott H. Irwin and Todd Hubbs) focuses on RIN Bank: Estimation and Relationship with RIN Prices. This essay addresses a critical gap in renewable fuel policy analysis by developing the a systematic methodology to estimate annual RIN (Renewable Identification Number) bank levels under the U.S. Renewable Fuel Standard and examining the relationship of the RIN bank-to-RVO ratio with RIN prices. Establishing a balance sheet framework analogous to grain commodity accounting, we estimate RIN bank levels from 2010-2023 using publicly available EPA data. Our estimates reveal two distinct boom-and-bust cycles, with the total RIN bank peaking at 4.1 billion gallons in 2011 and 3.8 billion gallons in 2017, before declining to a historic low of 360 million gallons in 2022. Despite a limited 13-observation sample, econometric analysis demonstrates statistically significant inverse relationships between RIN bank-to-RVO ratios and RIN prices across multiple functional forms, consistent with established storage theory. These findings provide essential analytical tools for policymakers as the RFS enters discretionary target-setting beyond 2022 statutory mandates. The methodology enables assessment of proposed reforms through their expected effects on banking levels and associated price impacts, while the price relationships offer insights for managing compliance costs and market stability in evolving biofuel markets.

Graduation Semester

2025-08

Type of Resource

Thesis

Handle URL

https://hdl.handle.net/2142/130105

Copyright and License Information

Copyright 2025 Maria Gerveni

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