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For many countries, money grows on trees: woody biomass is one of the most important sources of renewable energy in the European Union. In the United States, biomass was the input for almost half of the renewable energy generated in 2000; of the energy generated by biomass, seventy-six percent was produced from wood.1 Currently, biomass is the largest source of renewable energy in the country. The ability to secure a reliable and stable supply of biomass is therefore extremely important for the future of the renewable energy industry. According to the United States Department of Energy, the success of the domestic bioenergy industry relies on many factors, including reliable, adequate supply of highquality biomass. In order for the bioenergy industry to continue to grow and provide energy and fuel to millions of American homes and vehicles, the organizational aspects of the biomass supply chain need to be clearly defined and efficiently arranged. Dedicated biomass crops, which significantly differ from traditional commodity crops, present unique characteristics that bring uncertainties and costs to transactions that parties must contract around. In this Article, we take a transaction cost economics approach to the relationships among biomass market players, and discuss organizational choices ranging from spot market transactions to vertical integration. One approach to vertical integration involves a firm controlling different stages of its input supply chain. Vertical integration internalizes incentives and helps to reduce opportunism. In a vertically integrated bioenergy industry, the biomass end-user would exercise substantial control over the planting, harvesting, transporting, and storage of its biomass feedstock. In this work, we argue that because the nascent bioenergy industry shows evidence of high asset specificity, parties would benefit from a vertically integrated structure rather than a contractual model. We draw our conclusions based on an analysis of model biomass contracts, and an empirical study of agricultural disputes resolved through arbitration. We conclude that at the outset of a dynamic bioenergy industry, vertical integration is the best organizational model to account for the asset specificity, uncertainties, and transaction costs that characterize supply chains for dedicated biomass crops. [ABSTRACT FROM AUTHOR]

The Renewable Fuel Standard (RFS) program, which mandates the commercialization of biofuels through 2022, is the United States' most significant piece of legislation regarding renewable energy. It was first passed in 2005 and revised and expanded in 2007 in order to create a viable market for biofuels based on the policy goals of enhancing domestic U.S. energy security, reducing transportation-related greenhouse gas (GHG) emissions, and stimulating rural economic development. The RFS requires minimum levels of consumption for different kinds of biofuels and requires increasing blending amounts of biofuels into gasoline and diesel fuels by producers and importers each year. Mandates and targets for biofuels as required by the RFS are not a policy exclusive just to the U.S. Sixty-four other countries mandate fixed quantities of ethanol use in gasoline to generally stimulate renewable energy use and to specifically promote production of biofuels. In the past few years, there have been challenges in complying with the RFS in the U.S. As a result, legislative mandates were modified and reduced to respond to these difficulties. Proponents of the RFS argue that the policy reduces the risk of investing in renewable fuel projects, enhances the country's energy security as well as the rural sector, and addresses climate change concerns. On the other hand, critics argue that policy makers are "picking a winner" by funding biofuels over other types of alternative energy sources, and mandates for biofuels have presented unintended consequences in other areas, such as the food markets, land use patterns and the current gasoline-market infrastructure. Many studies have observed beneficial impacts of mandates on the agricultural markets and on the environment. However, there are very few empirical studies of the actual impact of the RFS on the development of the biofuel industry and none that use an industrial policy approach to analyze this issue. In this Article, we intend to fill this gap and provide an empirical study addressing whether the RFS is an effective policy instrument that incentivizes an efficient and sustainable development of the biofuels industry. Our analysis uses data from the first-generation ethanol industry between the years 2000 and 2013, and we find that the industry life cycle mediates the effects of the RFS in contributing to production-related economies of scale. More specifically, our empirical findings suggest that the RFS had a significant positive effect on the production capacity of firstgeneration ethanol firms during the early stages of development of the first-generation ethanol industry. But the RFS does not have a statistically significant effect on plant or firm capacity after the first-generation ethanol market entered a mature stage in its product life cycle. [ABSTRACT FROM AUTHOR]