Impact of government policies on Sustainable Petroleum Supply Chain (SPSC): A case study – Part I (Models)

Abstract

Environmental concerns and energy security have led governments to establish legislations to convert
Conventional Petroleum Supply Chain (CPSC) to Sustainable Petroleum Supply Chain (SPSC). The United States
(US), one of the biggest oil consumers in the world, has created regulations to manage ethanol production and con-
sumption for the last half century. Though these regulations have created new opportunities, they have also added new
burdens to the obligated parties. It is thus key for the government, the obligated parties, and related businesses to study
the impact of the policies on the SPSC. We develop a two-stage stochastic programming model, General Model (GM),
which incorporates Renewable Fuel Standard 2 (RFS2), Tax Credits, Tariffs, and Blend Wall (BW) to study the policy
impact on the SPSC using cellulosic ethanol. The model, as any other general model available in the literature, makes
it highly impractical to study the policy impact due to the model’s computational complexity. We use the GM to derive
a Lean Model (LM) to study the impact by running computational experiments more efficiently and consequently by
arriving at robust managerial insights much faster. We present a case study of the policy impact on the SPSC in the
State of Nebraska using the LM in the accompanying part II (Ghahremanlou and Kubiak 2020).