Annals of Operations Research

, Volume 236, Issue 1, pp 75–101

A bottom-up biofuel market equilibrium model for policy analysis

Article

DOI: 10.1007/s10479-013-1497-y

Cite this article as:
Zhang, L., Hu, G., Wang, L. et al. Ann Oper Res (2016) 236: 75. doi:10.1007/s10479-013-1497-y

Abstract

Although the biofuel market remains at its early stage, it is expected to play an important role in climate policy in the future in the transportation sector. In this paper, we develop a bottom-up equilibrium model to study the supply chain of the biofuel market, explicitly formulating the interactions among farmers, biofuel producers, blenders, and consumers. The model is built on optimization problems faced by each entity and considers decisions associated with farmers’ land allocation, biomass transportation, biofuel production, and biofuel blending. As such, the model is capable of and appropriate for policy analysis related to interactions among multiple stakeholders. For example, the model can be used to analyze the impacts of biofuel policies on market outcomes, pass-through of taxes or subsidies, and distribution of consumers’ or producers’ surplus. The equilibrium model can also serve as an analytical tool to study the price impact of biomass, biofuel, and Renewable Identification Numbers (RINs) for biofuels. We demonstrate the model by applying it to a case study of Iowa. We specifically focus on the effects of market structure, i.e., points-of-implementation on subsidies on market outcomes. The results indicate that some entities can benefit greatly at the expense of others when they possess market power. Government oversight is therefore needed to safeguard the development of the sector.

Keywords

Biofuel Supply chain Game theory Linear complementarity problem 

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Leilei Zhang
    • 1
  • Guping Hu
    • 1
  • Lizhi Wang
    • 2
  • Yihsu Chen
    • 3
    • 4
  1. 1.Industrial and Manufacturing Systems Engineering (IMSE)Iowa State UniversityAmesUSA
  2. 2.Industrial and Manufacturing Systems Engineering (IMSE)Iowa State UniversityAmesUSA
  3. 3.School of Social Sciences, Humanities and Arts, School of Engineering, Sierra Nevada Research InstituteUniversity of CaliforniaMercedUSA
  4. 4.The National Graduate Institute for Policy Studies (GRIPS)TokyoJapan

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