1. Weekend Reading: Just published an article in the AJAE with Kristin McCormack and Jim Stock at Harvard: "The Price of Biodiesel RINs and Economic Fundamentals." Issue includes a comment by Bruce Babcock and our rejoinder. Here is link to the issue onlinelibrary.wiley.com/toc/14678276/2…
2. Of course, I really like our article, but Bruce Babcock's commentary simply is not to be missed if you are interested in all the economic and policy controversies surrounding the #RFSwars. I wish this was not behind the paywall but not my call on that one.
3. We investigate in this article whether economic fundamentals explain D4 biodiesel RIN prices. Too many examples to count of accusations by both sides in the #RFSwars that RIN prices are manipulated, especially by those evil speculators.
4. The fundamental for D4 pricing is pretty simple if it were not for that darn biodiesel tax credit (BTC) that keeps going on and off. Essentially, the spread between biodiesel and diesel prices after accounting for the BTC.
5. Our pricing model is basically an option pricing model that incorporates uncertainty about the BTC being in place or not. Like all models, fit is not perfect, but we are able to explain the bulk of the variation of D4 prices. 
6. So you don't need to resort to market manipulation or speculation to rationally explain all but a small fraction of D4 biodiesel RIN prices. So, the RIN market is operating reasonably well and if you think there are problems with the RFS, they are with the policy not RINs.
7. This is not the main focus of the article but I really, really like this chart. Monthly D4 RIN generation with periods when BTC was in place shaded. Note the race to take advantage of the expiring BTC in terms of RIN generation. Like clockwork.
8. I like to call this "race for base" to take advantage of BTC before it expires. Remember that phrase from US dairy policy in the 1980s? A similar idea here. With a binding mandate, makes sense for obligated parties to offload as much of cost on taxpayers as they can.
9. Finally, interesting backstory. This research has its roots in a #FDD I wrote all the way back in 2014. I had the fundamentals right but not all the math needed to have a full blown pricing model. Good luck to connect with Kristen and Jim! farmdocdaily.illinois.edu/2014/10/unders…
