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Abstract
We explore four fundamental channels of mandate compliance available under current U.S. bio-
fuels policy: increased ethanol blending through E10 or E85, increased biodiesel blending, and a
reduction in the overall compliance base. Simulation results highlight the interplay and varying
importance of these channels at increasing blend mandate levels. In addition, we establish how
RIN prices are formed: The value of a RIN in equilibrium is shown to re
ect the marginal cost
of compensating the blender for employing one additional ethanol-equivalent unit of biofuel. This
contrasts with existing research equating the price of RINs to the gap between free-market ethanol
supply and demand at the mandate level. We demonstrate the importance of this distinction in
case of binding demand side infrastructure constraints such as the ethanol blend wall: as percent-
age blend mandates increase, the market for low-ethanol blends may contract in order to reduce
the overall compliance base. This has important implications for implied ethanol demand in the
economy.