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Renewable Accounts: The Championship Football Series and Biofuel Analogy

The NCAA Division I Football Championship series that the NDSU Bison are returning to for the third straight year provides the basis for an analogy with the renewable fuel standard, which is the federal policy that mandates minimum biofuel use.

By David Ripplinger, Bioproducts and Bioenergy Economist and Assistant Professor

NDSU Department of Agribusiness and Applied Economics

As an economist, I often think about markets. Among my favorite markets outside of agriculture and energy, is the search for event tickets. Information, risk, supply, demand, fear and greed are all there in these small, short-lived markets that license access to a unique, in-person experience.

The NCAA Division I Football Championship series that the NDSU Bison are returning to for the third straight year provides the basis for an analogy with the renewable fuel standard (RFS), which is the federal policy that mandates minimum biofuel use.

The NCAA requires that championship sponsors and participating universities purchase a minimum number of tickets to cover costs and make sure the stadium isn’t empty when seen on national television. In years when the demand is high, such as this year, meeting the minimum is easy, so the onus on sponsors and universities is nil. However, if the demand is low, sponsors and universities feel the squeeze and have to work hard to find a home for the tickets. This may include taking a loss on the tickets in addition to an unwanted headache.

The NCAA’s ticket requirement is similar to the renewable volumetric obligation (RVO) that the RFS places on obligated parties, which are mostly blenders and refiners. With the RFS, each obligated party has to ensure that it has met its RVO requirement or be penalized. This is not unlike sponsors and universities that are required to move a minimum number of tickets. However, instead of tracking seats with tickets, the RFS tracks gallons used through the use of renewable identification numbers (RINS).

The next part of the analogy is the secondary market. Ticket holders may find themselves with extra tickets or may find it profitable to sell their tickets to someone else. Speculators, who also are known as scalpers in the ticket market, may take positions with the expectation of making a profit.

The RFS allows something similar because RINs are tradable instruments. Obligated parties and others can trade RINs if they have blended more fuel then required or may sell the RINs for a profit. RINs allow parties to meet their obligation without having to take physical possession of biofuel just like sponsors and universities may never have their own butts in seats at the stadium. This may occur when blending biofuel is more costly to an obligated party than buying a RIN.

The last part of the championship biofuel analogy is capacity. Stadiums only have so many seats. More fans may be accommodated by allowing standing room only or putting in temporary seats. If enough notice is given and if long-term demand is expected to grow and justify the cost, the facility may be permanently expanded.

The analogy with the RFS and the blend wall is obvious. With its 2014 RVO, the Environmental Protection Agency (EPA) essentially has said the infrastructure is inadequate. In other words, the biofuel stadium isn’t big enough. However, in the eyes of the renewable fuel industry, the EPA missed the fact that you can squeeze a few more gallons with appropriate pricing and, more importantly, expand the infrastructure, which is one of the original RFS goals.

The analogy brings attention to a key RFS challenge, which is the fact that various parties have very different objectives. In the football championship realm, the NCAA, corporate sponsors, universities, scalpers, fans and the arena want different outcomes such as profit, notoriety or an experience. The same is true for the biofuels industry where corn growers, biorefineries, blenders, retailers and consumers have different goals.

It’s tough to align objectives and develop incentives to get people to do things they don’t want to do. I know this in theory because I’m a formally trained economist. I know it in practice as well because I have children.

The championship biofuel analogy is not perfect but few are. Hopefully, it achieves its purpose of helping to clarify and explain the RFS. It’s certainly possible that I’ve come up short. If that’s the case, there’s only one thing left to say: Go Bison!

NDSU Agriculture Communication – Dec. 27, 2013

Source:David Ripplinger, (701) 231-5265, david.ripplinger@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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