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Abstract: California’s Low Carbon Fuel Standard (LCFS) uses a system of carbon credits to subsidize low-carbon fuels based on their carbon emissions per megajoule of energy. Corn ethanol producers are the second largest source of renewable energy in California’s transportation sector, and they can earn over $0.10 per gallon of ethanol sold in California from LCFS credits. I estimate the impact of weekly credit price changes on the cash corn prices of ethanol plants selling into California, and I use data from the California Air Resources Board and a fixed-proportions model of ethanol production to determine the per bushel value of LCFS credits. I find that 40% of credit price changes pass-through to corn prices. My results are consistent with a spatial-competition model of the LCFS providing some corn buyers with a competitive advantage over others. Heterogeneity among commodity buyers can lead to the incomplete pass-through of market-based emissions policies to energy feedstock prices. Policymakers seeking to develop markets for climate-smart commodities need to be aware that a significant portion of the value for commodities with reduced carbon emissions could accrue to large processors market power.
Smith, Aaron, and Andrew Swanson. 2024. The Economic and Policy Challenges of Climate Smart Agriculture. Conditionally Accepted at Review of Environmental Economics and Policy. Working paper draft.
Swanson, Andrew and Aaron Smith. 2024. An Eye to the Sky: Will Sustainable Aviation Fuel Take Off in California? ARE Update 27(5):5-8. University of California Giannini Foundation of Agricultural Economics. Available here.
Grimaldi Avileis, Felipe, Colin Carter, Jens Hilscher, Aaron Smith and Andrew Swanson. 2024. The California Low Carbon Fuel Standard and Its Consequences. ARE Update 27(5):1-4. University of California Giannini Foundation of Agricultural Economics. Available here.
Swanson, Andrew. 2024. Is Sustainable Aviation Fuel the Future of Ethanol? farmdoc daily (14):39. Available here.
Swanson, Andrew, and Aaron Smith. 2024. Alternative Land-Use Impacts of the Sustainable Aviation Fuel Grand Challenge: Corn Ethanol vs. Soybean Oil Pathways. American Enterprise Institute. Available here.
Nehring, Richard, Hannah Shear, Kelvin Leibold, and Andrew Swanson. The Economics and Productivity of U.S. Cow-Calf Production. Manuscript under review with revise and resubmit at Journal of Applied Farm Economics.
Swanson, Andrew, Anton Bekkerman, and Mykel Taylor. Cost and Cooperation: The Effects of Section 199 on the Basis Offered by Grain Marketing Cooperatives. Working Paper. Available here.
Nehring, Richard, Samuel Bailey, Daniel Bonin, and Andrew Swanson. Seed Use and Pest Management in U.S. Crop Systems in Recent Years: Corn, Cotton, Soybean and Wheat Production. Internal USDA Working Paper.
Swanson, Andrew. To Dry or Not to Dry: The Pass-Through of LCFS Subsidies to Distillers Grain Prices. Poster available here.