The Design of Renewable Fuel Policies and Cost Containment Mechanisms

Renewable fuel mandates are popular policy mechanisms to reduce greenhouse gas emissions from transportation fuels. We study the effects and effciency of two policies, a renewable share mandate and a carbon intensity standard, with and without a cost containment mechanism. Using both a theory model of a regulated fuel industry and a numerical model of the U.S. fuel market, we show that an optimally set mandate leads to only modest welfare gains over business as usual. However, the effciency of both policies substantially increases when combined optimally with a cost containment mechanism