Professor Lade’s research focuses on renewable fuels and renewable fuel policy. Federal and state policy in recent years has aimed at reducing greenhouse gas emissions in the transportation sector primarily through renewable fuel mandates. The two most prominent examples in the United States are the U.S. renewable fuel standard (RFS) and California’s low carbon fuel standard (LCFS). Professor Lade’s research focuses on studying the effects of renewable fuel mandates.
In a paper on the design of renewable fuel mandates and cost containment mechanisms, Professor Lade studies the effects and efficiency of two types of mandates, a renewable share mandate similar to the federal Renewable Fuel Standard and a carbon intensity standard similar to California's Low Carbon Fuel Standard, with and without a cost containment mechanism. He innovates upon the previous literature by developing a theory model that incorporates both a renewable fuel share mandate and a carbon intensity standard. He shows numerically that both fuel mandates in isolation are only able to achieve around a quarter to a third of the efficiency of the first-best policy; however, when combined optimally with a cost containment mechanism, the efficiency of both policies can increase substantially.
This paper builds upon a report he prepared for the California Air Resources Board which received much media attention. In this report, Professor Lade examines multiple issues related to the costs of the LCFS in the near future, and analyzes provisions designed to contain compliance costs at reasonable levels. Using both analytical and numerical methods, he extends the economics literature on programs such as the LCFS. In addition, he discusses a number of other important issues such as concerns over market power in the state's fuel and credit markets, the role of dynamics and uncertainty on market outcomes, and incentives to innovate and invest in renewable fuels and their potential interactions with cost containment mechanisms. He finds that compliance costs may increase rapidly in the future if there are large differences in marginal costs between traditional fossil fuels and alternative, low carbon intensity fuels; or if there are capacity or technological constraints to deploying alternative fuels, particularly those with low carbon intensity. The potential for compliance costs to increase rapidly in the near future motivates his recommendation of a hard cap on LCFS credit prices to guarantee that compliance costs will never exceed either the credit window price or the non-compliance fee.
In a paper published in the American Journal of Agricultural Economics on policy shocks and market-based regulations, Professor Lade analyzes credit trading markets, a key provision under renewable mandates. Under a credit trading scheme, firms receive credits for any input use beyond mandated amounts, which can be traded with other firms. Economic theory has long suggested that there are large gains from flexible enforcement mechanisms, especially when firms have heterogeneous cost structures. A recent credit market which has developed in the United States is the market for Renewable Identification Numbers (RINs) under the Environmental Protection Agency’s Renewable Fuel Standard (RFS2).
In this paper, Professor Lade develops a dynamic model of an industry facing a RFS2 to account for the dynamic nature of the program, which highlights the importance of expectations in driving current credit prices. He also develops an empirical method to determine whether the RIN market has behaved as would be expected under a rational expectations equilibrium, and to identify important factors affecting RIN prices. He then estimates the effects of changes in expected future levels of the policy using an event study. His results provide evidence that the introduction of policy uncertainty can lead to large swings in the value of credits, undermining the program's goals.
In ongoing work, Professor Lade is analyzing the optimal design of renewable fuel policy when firms have market power. The fuel industry in the United States is composed of several large petroleum refiners who control a substantial portion of total production capacity. In addition, the ethanol industry trend is towards consolidation of production capacity. Renewable fuel policy should therefore account for market power.
Professor Lade’s research has important implications for policy. Many policies currently implemented or being proposed at national and state levels to reduce greenhouse gas emissions from the transportation sector involve some form of a renewable fuel mandate since such policies have the potential for increasing the use of cleaner, more renewable fuels while avoiding the politically infeasible option of taxation. Moreover, Professor Lade’s clever use of frontier methods and the insights from his research make his research of particular interest to academics as well. His research findings are therefore of high intellectual and practical significance.
In addition to the Chevron Fellowship, Professor Lade received numerous other prestigious awards for his research as well, including the BP Corporate Affiliate Fellowship, the Provost’s Dissertation Year Fellowship, 1st place for his paper and presentation at the 2014 International Academic Conference for Graduate Students held at Nanjing Agricultural University in China, the National Center for Sustainable Transportation (NCST) 2015 Outstanding Graduate Student of the Year, and Honorable Mention for the UC-Davis Agricultural and Resource Economics Best Ph.D. Dissertation in 2015. He was also a member of a team of four students that won second place at the 2013 U.S. Association for Energy Economics Case Competition.
Professor Lade’s research has been featured in such media outlets as Platt’s blog, Green Car Congress, Biodiesel Magazine, Ethanol Producer Magazine, Biomass Magazine, and the Resources for the Future library blog.
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