The Changing Us Fertilizer Industry

Author : Jacob Michael Humber
Publisher :
ISBN 13 : 9781369795479
Total Pages : pages
Book Rating : 4.7/5 (954 download)

DOWNLOAD NOW!

Download or read book The Implications of Climate Change Policy in the United States Nitrogen Fertilizer Industry written by Jacob Michael Humber and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The imposition of environmental regulations, such as greenhouse gas charges, to domestic manufacturing traditionally creates concerns over the impacts of those regulations on international competition and emissions leakage. To address these concerns, environmental regulations utilize an allowance trading scheme that allocates free allowances to those industries that are most susceptible to such effects. Such environmental regulations have been proposed by Federal legislation and are currently practiced in California, Australia and New Zealand. This dissertation studies the implications of such a policy in the context of the U.S. nitrogen fertilizer industry. This industry is an interesting candidate of study as it has been identified, by conventional metrics, to be an industry that is particularly vulnerable to the imposition of an environmental charge. The second chapter of this dissertation utilizes the price of natural gas, a key input in the production of nitrogen fertilizer, as a proxy for a potential greenhouse gas charge. A structural break in the natural gas to nitrogen fertilizer price pass-through rate is discovered at the onset of 2010. One implication of this change in pricing dynamics is that the imposition of greenhouse gas (GHG) regulations on producers of nitrogen fertilizer would have almost no impact on fertilizer prices. Within the context of an allowance trading scheme in which the U.S. nitrogen fertilizer industry would receive free allowances, fertilizer producers would likely receive a transfer on the order of hundreds of millions of dollars with no impact on fertilizer prices, emissions or quantity consumed. The third chapter of this dissertation extends the work of the second chapter and focuses exclusively on the potential causes of the decoupling of nitrogen fertilizer and natural gas prices. In doing so, I identify two structural breaks that coincide with the commodity price spike in 2007-2008 and the fracking boom. These findings are consistent with observed industry utilization rates and suggest that the decoupling of nitrogen fertilizer and natural gas price is a result of the U.S. nitrogen fertilizer industry being capacity constrained. When free allowances are allocated in accordance with predefined industry metrics, as is the case for allowance trading schemes that allocate free allowances to vulnerable industries, an implicit incentive exists for an industry to manipulate output so as to maintain its eligibility to receive allowances. Chapter four of this dissertation explores the implication of this discrete threshold in the context of the U.S. nitrogen fertilizer industry. Simulating a theoretical model, I find that for a specific range of input prices, the U.S. nitrogen fertilizer industry has an incentive to produce a level of output that ensures it continues to receive free allowances. As a result, the industry produces a level of output in which the marginal revenue exceeds the marginal cost of production and therefore it receives economic rents in the long-run.