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

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 consumption 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).