RIN Values: What Do They Tell Us about the Impact of Biofuel Mandates?
The impact of the US drought on the price of corn and other feed grains and oilseeds has made the arcane subject of Renewable Identification Number (RINs) and the role of US biofuel policy of great interest this year. For example, there have been a number of recent calls to the EPA for waivers of the RFS mandates to relieve pressure on food prices for consumers and feed prices for livestock producers. In this post we review the basic economics of the ethanol market both with and without the RFS mandate, and discuss RIN valuation under both conditions. We then provide some speculation as to the support the RFS mandates are currently providing to corn prices based on recently observed RIN prices.
Preliminary Assessment of the Drought's Impacts on Crop Prices and Biofuel Production
Drought has sharply decreased the size of the US corn and soybean crops this year. While there is no way of knowing for sure how low yields will go, the continuation of hot and dry weather in the major corn and soybean producing areas indicates that yield losses could be of historic proportions. The potential economic impact of low yields-particularly corn yields-is heightened this year because of a low buffer stock of corn, and because 10 percent of our motor fuel supply comes from corn. This briefing paper presents preliminary estimates of the economic impacts of low US corn and soybeans yields. The impacts are estimated for the 2012â€“13 crop year that begins on September 1st. Because we do not know what future yields will be or what future gasoline prices will be, we make the preliminary estimates using a stochastic partial equilibrium model. This type of model solves for market-clearing prices for a large number of random "draws" of yields and gasoline prices. The model is calibrated to information that is available to us at the current time, including the USDA's supply and demand projections and the level of futures prices for gasoline, corn, and ethanol.
The Posse Comitatus Act: Liberation from the Lawyers
"Whoever, except in cases and under circumstances expressly authorized by the Constitution or Act of Congress, willfully uses any part of the Army or the Air Force as a posse comitatus or otherwise to execute the laws shall be fined under this title or imprisoned not more than two years, or both." --Posse Comitatus Act (1) Much has been written about the Posse Comitatus Act. As a few others have noted, much of this commentary is "just plain nonsense." (2) The majority opinion, however, including that of the Department of Defense, maintains that this 19th-century law strictly limits almost all DOD participation in any activity related to "law enforcement" or "homeland security." (3) This fundamental mischaracterization, while understandable, is potentially dangerous to national security and has done nothing to protect civil liberties. So how did a racist law from the bitter Reconstruction period morph, in many minds, into shorthand for the respected principle that Americans do not want a military national police force? In a nutshell: deliberate mischaracterization by the original supporters who hid behind patriotic language to strip the freed slaves of their nascent civil and voting rights; excessive focus on the false historical arguments as opposed to the law's actual text and ugly history; and some bad policy that misused a few key court decisions, and part of a statute, in a way that limited DOD efforts in the "war on drugs" at a time when Congress was pushing expanded participation. This article introduces the actual history and meaning of the Posse Comitatus Act, distinguishing clearly between the law and a misleading DOD regulation that requires an army of lawyers to navigate. Despite what you've heard, the Posse Comitatus Act is not a significant impediment to DOD participation in law enforcement or homeland security. The Act's Uninspiring Pedigree General Acceptance of Army Participation in Law Enforcement (1787-1861) While the nation's founders were deeply concerned with the abuses of the British army during the colonial period and military interference in civil affairs, the majority was even more concerned about a weak national government incapable of securing life, liberty, and property. Some vocal patriots sought to avoid a standing army and any federal control over the state militias; however, in the end, theirs was the minority view. The new Constitution did not contain the explicit limits and outright bans desired by some, even though the pro-Constitution Federalists explicitly argued that the standing army could assist in law enforcement efforts. The framers even debated the federal government's power to call out the posse comitatus (literally meaning the power or authority of the county) and did not prohibit this established feature of the common law. Clearly, the Posse Comitatus Act did not originate from the prevailing opinion during the revolutionary period. Legislative and executive actions in the early days of the American republic confirm that the use of federal troops or federalized militia to preserve domestic order, either as part of a posse comitatus or otherwise, was an accepted feature of American life under the new Constitution. In 1794, President Washington led federal troops into western Pennsylvania because unruly farmers refused to pay a whiskey excise tax. President Jefferson issued a broad proclamation that relied upon the Chief Executive's authority to call on the entire populace, military and civilian, to serve as a grand posse comitatus to counter Aaron Burr's planned expedition against Spanish territory. In 1832, President Jackson initially sent military forces toward South Carolina under a Jefferson-like posse comitatus theory to prevent secession. In an 1851 report to the Senate, President Fillmore stated that he had the inherent power to use regular troops to enforce the laws and that all citizens could be called into a posse by the marshal. …