Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard.
Lade, G. E; Lin Lawell, C. C.; and Smith, A.
American Journal of Agricultural Economics, 100(3): 707–731. 2018.
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abstract
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@article{lade2018policy,
title={Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard},
author={Lade, Gabriel E and Lin Lawell, C-Y Cynthia and Smith, Aaron},
journal={American Journal of Agricultural Economics},
volume={100},
number={3},
pages={707--731},
year={2018},
url={https://files.asmith.ucdavis.edu/2018_AJAE_LLS_rfspolicyshocks.pdf},
abstract={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 industry’s 2013 compliance obligation by 7 billion dollars. 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.},
keywords={energy},
publisher={Oxford University Press}
}
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 industry’s 2013 compliance obligation by 7 billion dollars. 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.
The Incentive to Overinvest in Energy Efficiency: Evidence from Hourly Smart-Meter Data.
Novan, K.; and Smith, A.
Journal of the Association of Environmental and Resource Economists, 5(3): 577–605. 2018.
Paper
link
bibtex
abstract
9 downloads
@article{novan2018incentive,
title={The Incentive to Overinvest in Energy Efficiency: Evidence from Hourly Smart-Meter Data},
author={Novan, Kevin and Smith, Aaron},
journal={Journal of the Association of Environmental and Resource Economists},
volume={5},
number={3},
pages={577--605},
year={2018},
url={https://files.asmith.ucdavis.edu/2018_JAERE_NS_energyefficiency.pdf},
keywords={energy},
abstract={Many households pay a marginal price for electricity that exceeds the marginal social cost of supplying that electricity. We show evidence that such pricing schemes can create an incentive to overinvest in energy efficiency. Using hourly smart-meter data for households facing time-invariant increasing block prices, we estimate how air conditioner upgrades affect electricity use. We find that the average participating household reduces consumption by 5\%, which provides private savings in the form of lower electricity bills and social cost savings by decreasing generation and pollution costs. The private savings exceed the social savings by an average of 140\%, so the average household is faced with an incentive to overinvest in energy efficiency. This incentive to overinvest in energy efficiency would be cut in half if consumers faced any one of three alternative pricing plans with lower marginal price but the same average price.},
publisher={University of Chicago Press Chicago, IL}
}
Many households pay a marginal price for electricity that exceeds the marginal social cost of supplying that electricity. We show evidence that such pricing schemes can create an incentive to overinvest in energy efficiency. Using hourly smart-meter data for households facing time-invariant increasing block prices, we estimate how air conditioner upgrades affect electricity use. We find that the average participating household reduces consumption by 5%, which provides private savings in the form of lower electricity bills and social cost savings by decreasing generation and pollution costs. The private savings exceed the social savings by an average of 140%, so the average household is faced with an incentive to overinvest in energy efficiency. This incentive to overinvest in energy efficiency would be cut in half if consumers faced any one of three alternative pricing plans with lower marginal price but the same average price.
Designing Climate Policy: Lessons from the Renewable Fuel Standard and the Blend Wall.
Lade, G. E; Cynthia Lin Lawell, C.; and Smith, A.
American Journal of Agricultural Economics, 100(2): 585–599. 2018.
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abstract
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@article{lade2018designing,
title={Designing Climate Policy: Lessons from the Renewable Fuel Standard and the Blend Wall},
author={Lade, Gabriel E and Cynthia Lin Lawell, CY and Smith, Aaron},
journal={American Journal of Agricultural Economics},
volume={100},
number={2},
pages={585--599},
year={2018},
url={https://files.asmith.ucdavis.edu/2018_AJAE_LLS_climatepolicy.pdf},
keywords={energy},
abstract={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.},
publisher={Oxford University Press}
}
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.
Effects of Crop Insurance Premium Subsidies on Crop Acreage.
Yu, J.; Smith, A.; and Sumner, D. A
American Journal of Agricultural Economics, 100(1): 91–114. 2018.
Paper
link
bibtex
abstract
11 downloads
@article{yu2018effects,
title={Effects of Crop Insurance Premium Subsidies on Crop Acreage},
author={Yu, Jisang and Smith, Aaron and Sumner, Daniel A},
journal={American Journal of Agricultural Economics},
volume={100},
number={1},
pages={91--114},
year={2018},
url={https://files.asmith.ucdavis.edu/2018_AJAE_YSS_cropinsurance.pdf},
keywords={agriculture},
abstract={Crop insurance premium subsidies affect patterns of crop acreage for two reasons. First, holding insurance coverage constant, premium subsidies directly increase expected profit, which encourages more acreage of insured crops (direct profit effect). Second, premium subsidies encourage farms to increase crop insurance coverage. With more insurance coverage, farms obtain more subsidies, and farm revenue becomes less variable as indemnities offset revenue shortfalls, so acreage of insured crops likely increases (indirect coverage effect). By exploiting exogenous policy changes and using approximately 180,000 county‐crop‐year observations, we estimate the sum of these two effects of premium subsidies on the pattern of U.S. acreage across seven major field crops. We estimate that a 10\% increase in the premium subsidy causes a 0.43\% increase in the acreage of a crop in a county holding the premium subsidy of its competing crop constant. Taking into account the small share of premium subsidies in expected crop revenue, this subsidy impact is analogous to an own‐subsidy acreage elasticity of 1.24, which exceeds own‐price acreage elasticity estimates in the literature. One explanation for the larger acreage response to premium subsidies is that insurance causes an indirect coverage effect in addition to a direct profit effect.},
publisher={Oxford University Press}
}
Crop insurance premium subsidies affect patterns of crop acreage for two reasons. First, holding insurance coverage constant, premium subsidies directly increase expected profit, which encourages more acreage of insured crops (direct profit effect). Second, premium subsidies encourage farms to increase crop insurance coverage. With more insurance coverage, farms obtain more subsidies, and farm revenue becomes less variable as indemnities offset revenue shortfalls, so acreage of insured crops likely increases (indirect coverage effect). By exploiting exogenous policy changes and using approximately 180,000 county‐crop‐year observations, we estimate the sum of these two effects of premium subsidies on the pattern of U.S. acreage across seven major field crops. We estimate that a 10% increase in the premium subsidy causes a 0.43% increase in the acreage of a crop in a county holding the premium subsidy of its competing crop constant. Taking into account the small share of premium subsidies in expected crop revenue, this subsidy impact is analogous to an own‐subsidy acreage elasticity of 1.24, which exceeds own‐price acreage elasticity estimates in the literature. One explanation for the larger acreage response to premium subsidies is that insurance causes an indirect coverage effect in addition to a direct profit effect.
Financialization and the Returns to Commodity Investments.
Main, S.; Irwin, S. H; Sanders, D. R; and Smith, A.
Journal of Commodity Markets, 10: 22–28. 2018.
Paper
link
bibtex
abstract
6 downloads
@article{main2018financialization,
title={Financialization and the Returns to Commodity Investments},
author={Main, Scott and Irwin, Scott H and Sanders, Dwight R and Smith, Aaron},
journal={Journal of Commodity Markets},
volume={10},
pages={22--28},
year={2018},
url={https://files.asmith.ucdavis.edu/2018_JCommMkt_MISS_financialization.pdf},
keywords={commodities},
abstract={No. We show that managed money traders tend to change positions in the same direction as prices, whereas commercial firms change positions in the opposite direction. Using insights from difference of opinion theory, we conclude that managed money traders have strong beliefs about the markets and trade aggressively. Commercial firms are willing to take the other side of these trades, and thus they provide liquidity to managed money firms. However, we find no evidence that this trading dynamic results in prices that deviate significantly from supply and demand fundamentals.},
publisher={Elsevier}
}
No. We show that managed money traders tend to change positions in the same direction as prices, whereas commercial firms change positions in the opposite direction. Using insights from difference of opinion theory, we conclude that managed money traders have strong beliefs about the markets and trade aggressively. Commercial firms are willing to take the other side of these trades, and thus they provide liquidity to managed money firms. However, we find no evidence that this trading dynamic results in prices that deviate significantly from supply and demand fundamentals.
A Century of US Farm Productivity Growth: A Surge then a Slowdown.
Andersen, M. A; Alston, J. M; Pardey, P. G; and Smith, A.
American Journal of Agricultural Economics, 100(4): 1072–1090. 2018.
Paper
link
bibtex
abstract
8 downloads
@article{andersen2018century,
title={A Century of US Farm Productivity Growth: A Surge then a Slowdown},
author={Andersen, Matthew A and Alston, Julian M and Pardey, Philip G and Smith, Aaron},
journal={American Journal of Agricultural Economics},
volume={100},
number={4},
pages={1072--1090},
year={2018},
url={https://files.asmith.ucdavis.edu/2018_AJAE_AAPS_productivity.pdf},
keywords={agriculture},
abstract={U.S. farm productivity growth has direct consequences for sustainably feeding the world's still rapidly growing population, as well as U.S. competitiveness in international markets. Using a newly expanded compilation of multifactor productivity (MFP) estimates and associated partial‐factor productivity (PFP) measures, we examine changes in the pattern of U.S. agricultural productivity growth over the past century and more. Considering the evidence as a whole, we detect sizable and significant slowdowns in the rate of productivity growth in recent decades. U.S. multifactor productivity grew at an annual average rate of just 1.16\% per year during 1990–2007 compared with 1.42\% per year for the period 1910–2007. U.S. yields of major crops grew at an annual average rate of 1.17\% per year for 1990–2009 compared with 1.81\% per year for 1936–1990. More subtly, but with potentially profound implications, the relatively high rates of MFP growth during the third quarter of the century are an historical aberration relative to the long‐run trend.},
addendum={\textbf{Honorable Mention. Outstanding AJAE Article Award, AAEA, 2019}},
publisher={Oxford University Press}
}
U.S. farm productivity growth has direct consequences for sustainably feeding the world's still rapidly growing population, as well as U.S. competitiveness in international markets. Using a newly expanded compilation of multifactor productivity (MFP) estimates and associated partial‐factor productivity (PFP) measures, we examine changes in the pattern of U.S. agricultural productivity growth over the past century and more. Considering the evidence as a whole, we detect sizable and significant slowdowns in the rate of productivity growth in recent decades. U.S. multifactor productivity grew at an annual average rate of just 1.16% per year during 1990–2007 compared with 1.42% per year for the period 1910–2007. U.S. yields of major crops grew at an annual average rate of 1.17% per year for 1990–2009 compared with 1.81% per year for 1936–1990. More subtly, but with potentially profound implications, the relatively high rates of MFP growth during the third quarter of the century are an historical aberration relative to the long‐run trend.
Commodity Price Comovement and Financial Speculation: The Case of Cotton.
Janzen, J. P; Smith, A.; and Carter, C. A
American Journal of Agricultural Economics, 100(1): 264-285. 2018.
Paper
link
bibtex
abstract
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@article{janzen2018commodity,
title={Commodity Price Comovement and Financial Speculation: The Case of Cotton},
author={Janzen, Joseph P and Smith, Aaron and Carter, Colin A},
journal={American Journal of Agricultural Economics},
volume={100},
number={1},
pages={264-285},
year={2018},
url={https://files.asmith.ucdavis.edu/2018_AJAE_JSC_cotton.pdf},
keywords={commodities},
abstract={Recent booms and busts in commodity prices have generated concerns that financial speculation causes excessive commodity‐price comovement, driving prices away from levels implied by supply and demand under rational expectations. We develop a structural vector autoregression model of a commodity futures market and use it to explain two recent spikes in cotton prices. In doing so, we make two contributions to the literature on commodity price dynamics. First, we estimate the extent to which cotton price booms and busts can be attributed to comovement with other commodities. Finding such comovement would be necessary but would not be sufficient evidence to establish that broad‐based financial speculation drives commodity prices. Second, after controlling for aggregate demand and comovement, we develop a new method to point identify shocks to precautionary demand for cotton separately from shocks to current supply and demand. To do so, we use differences in volatility across time implied by the rational expectations competitive storage model. We find limited evidence that financial speculation caused cotton prices to spike in 2008 or 2011. We conclude that the 2008 price spike was driven mostly by precautionary demand for cotton, and the 2011 spike was caused by a net supply shortfall.},
publisher={Oxford University Press}
}
Recent booms and busts in commodity prices have generated concerns that financial speculation causes excessive commodity‐price comovement, driving prices away from levels implied by supply and demand under rational expectations. We develop a structural vector autoregression model of a commodity futures market and use it to explain two recent spikes in cotton prices. In doing so, we make two contributions to the literature on commodity price dynamics. First, we estimate the extent to which cotton price booms and busts can be attributed to comovement with other commodities. Finding such comovement would be necessary but would not be sufficient evidence to establish that broad‐based financial speculation drives commodity prices. Second, after controlling for aggregate demand and comovement, we develop a new method to point identify shocks to precautionary demand for cotton separately from shocks to current supply and demand. To do so, we use differences in volatility across time implied by the rational expectations competitive storage model. We find limited evidence that financial speculation caused cotton prices to spike in 2008 or 2011. We conclude that the 2008 price spike was driven mostly by precautionary demand for cotton, and the 2011 spike was caused by a net supply shortfall.
Will Battle Between `Big Corn' And `Big Oil' Stall Next Generation Biofuels?.
Smith, A.; and Smith, V.
Investor's Business Daily, 2018.
Paper
link
bibtex
@misc{smith2018battle,
title={Will Battle Between `Big Corn' And `Big Oil' Stall Next Generation Biofuels?},
author={Smith, Aaron and Smith, Vince},
howpublished={Investor's Business Daily},
pages={},
url={https://www.investors.com/politics/commentary/battle-between-big-corn-and-big-oil-could-stall-next-generation-biofuels/},
year={2018}
}
High Frequency Trading of Commodities.
Fishe, R. P H; and Smith, A.
Oxford University Press, 2018.
Paper
link
bibtex
@inbook{fishe2018high,
chapter={High Frequency Trading of Commodities},
author={Fishe, Raymond P H and Smith, Aaron},
editor={Baker, H Kent and Filbeck, Greg and Harris, Jeffrey H },
booktitle={Commodities: Markets, Performance, and Strategies},
pages={},
year={2018},
url={https://doi.org/10.1093/oso/9780190656010.003.0023},
publisher={Oxford University Press}
}