Investment in Cellulosic Biofuel Refineries: Do Waivable Biofuel Mandates Matter?

Abstract

We develop a conceptual model to study the impact of mandate policies on stimulating investment in cellulosic biofuel refineries. In a two‐period framework, we compare the first‐period investment level (FIL) under three scenarios: laissez‐faire, non‐waivable mandate (NWM) policy, and waivable mandate (WM) policy. Results show that when plant‐level marginal costs are increasing then both NWM policy and WM policy may stimulate FIL. The WM policy has a smaller impact than does the NWM policy. When the plant‐level marginal costs are constants, however, WM policy does not increase FIL but does increase the expected profit of more efficient investors.

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