Biofuel-related price transmission using Renewable Identification Number prices to signal mandate regime

This paper improves on existing methods of testing price links between biofuels, petroleum, petroleum products, and agricultural commodity feedstocks by incorporating information contained in the prices of Renewable Identification Numbers (RINs) that are used for biofuel mandate compliance. Theoretical equations are developed to show the role RIN prices can play in the relationships among energy, biofuel, and agricultural commodity prices. RIN price data are used (a) to infer values of fuels where market data are unavailable and (b) to define binding and non-binding mandate regimes. A specific empirical exercise exploits the RIN price data to conduct cointegration tests on high frequency data representing spot and futures prices relating to ethanol and biodiesel from February 2009 through March 2015, finding little evidence of short-term biofuel and petroleum product substitution during this period.