Currently, ethanol production in the USA is stimulated by mandates set by the US EPA. Renewable Fuel Standard (RFS2) creates requirements which oblige fuel blenders to mix ethanol into fuel blends. In our analysis, first, we make a projec­tion of future volume of ethanol production with mandates in place until 2040. Then, we observe how these volumes change once market penetration costs are removed. This endeavor helps us in understanding how adjustments in current fuel distribution network and car fleet could influence total amount of ethanol produced and sold in the USA. Second, we look at the projected amount of ethanol pro­duced under situation with no mandates in place. That investigation provides us with projection of possible ethanol production should the US EPA decide to waive all renewable fuel mandates. Again, we look how these estimated amounts are impacted by removal of ethanol market penetration barriers.

Our next steps include examination of changes in volume of ethanol produced as a response to increasing CO2e prices. By doing this, we are able to see what level of CO2e price stimulates higher volumes of ethanol production, and we can verify at which CO2e price ethanol production reaches volumes mandated by the RFS2. We repeat the same exercise for two cases: first one with a market situation with no mandates in place but with market penetration barriers present, second one with no mandates and no market penetration barriers. In our analysis, we assume that the presence of carbon trading markets is a substitute for the EPA mandates because car­bon trading mechanism is supposed to provide incentives similar to standard quantity requirements. Therefore, we do not examine the impact of changes in CO2e prices on the volume of ethanol produced when the EPA mandates hold. At the end, we compare CO2e price effect on ethanol produced under two scenarios: with and without mar­ket penetration barriers in place in order to look at the magnitude of impact of mar­ket penetration removal on total ethanol produced in the USA. All in all, the outcomes of these scenarios provide enough information for decision makers to assess potential benefits which could arise from introduction of carbon pricing and trading mecha­nisms as well as positive environmental and economic consequences from removing market penetration barriers. Finally, we look at the impact of technological progress on volume of ethanol produced. We investigate how decrease in processing costs of cellu — losic ethanol influences quantity of crop and cellulosic ethanol produced at three points of time (i. e., 2020, 2030 and 2040). By doing this, we attempt to quantify the level of processing cost decrease necessary for ethanol production to become cost competitive.