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Is the RIN Market Efficient? - An Event Study of the Blenders' Tax Credit

Korpela, Vili LU and Gude, Torstein LU (2017) NEKP03 20171
Department of Economics
Abstract (Swedish)
The purpose of this study is to investigate if the Renewable Identification Numbers (RIN) markets have operated efficiently, a controversial and unexplored area in prior research. This is done through an event study of the retroactive introductions of the Blenders Tax Credit (BTC) and its effect on the RIN Credit Market, related commodity markets and relevant firm stocks.

The study applies a sample consisting of daily RIN prices from 2010-2017 for various RIN categories, with 14 identified events (stages) related to and including the retroactive introductions of the BTC. Further, the paper applies an event study methodology, with relevant adjustments and considerations made for the special characteristics of the markets under... (More)
The purpose of this study is to investigate if the Renewable Identification Numbers (RIN) markets have operated efficiently, a controversial and unexplored area in prior research. This is done through an event study of the retroactive introductions of the Blenders Tax Credit (BTC) and its effect on the RIN Credit Market, related commodity markets and relevant firm stocks.

The study applies a sample consisting of daily RIN prices from 2010-2017 for various RIN categories, with 14 identified events (stages) related to and including the retroactive introductions of the BTC. Further, the paper applies an event study methodology, with relevant adjustments and considerations made for the special characteristics of the markets under investigation and the regulatory nature of the events.

We find no evidence to reject the hypothesis of efficient RIN, related commodity and biofuel markets in their reaction to the BTC events. Additionally, the empirical results suggest a degree of market anticipation and information leakage to the BTC events. Last, we find indication that reactions vary based on the information content of the various legislative stages, with the largest reaction for stage 4 events, which are conclusive and final in their nature. This suggests ambiguity in the reaction to intermediate events leading to final policy outcomes.

These findings set the stage for further research on the novel RIN market, the effects of tax credits and their usefulness as a policy tool, in addition to exploration of similar credit markets. (Less)
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author
Korpela, Vili LU and Gude, Torstein LU
supervisor
organization
course
NEKP03 20171
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Renewable Identification Numbers (RINs), Blenders’ Tax Credit (BTC), Event Study, Renewable Fuel Standard (RFS)
language
English
id
8914762
date added to LUP
2017-06-13 14:45:57
date last changed
2017-06-13 14:45:57
@misc{8914762,
  abstract     = {The purpose of this study is to investigate if the Renewable Identification Numbers (RIN) markets have operated efficiently, a controversial and unexplored area in prior research. This is done through an event study of the retroactive introductions of the Blenders Tax Credit (BTC) and its effect on the RIN Credit Market, related commodity markets and relevant firm stocks.

The study applies a sample consisting of daily RIN prices from 2010-2017 for various RIN categories, with 14 identified events (stages) related to and including the retroactive introductions of the BTC. Further, the paper applies an event study methodology, with relevant adjustments and considerations made for the special characteristics of the markets under investigation and the regulatory nature of the events.

We find no evidence to reject the hypothesis of efficient RIN, related commodity and biofuel markets in their reaction to the BTC events. Additionally, the empirical results suggest a degree of market anticipation and information leakage to the BTC events. Last, we find indication that reactions vary based on the information content of the various legislative stages, with the largest reaction for stage 4 events, which are conclusive and final in their nature. This suggests ambiguity in the reaction to intermediate events leading to final policy outcomes.

These findings set the stage for further research on the novel RIN market, the effects of tax credits and their usefulness as a policy tool, in addition to exploration of similar credit markets.},
  author       = {Korpela, Vili and Gude, Torstein},
  keyword      = {Renewable Identification Numbers (RINs),Blenders’ Tax Credit (BTC),Event Study,Renewable Fuel Standard (RFS)},
  language     = {eng},
  note         = {Student Paper},
  title        = {Is the RIN Market Efficient? - An Event Study of the Blenders' Tax Credit},
  year         = {2017},
}