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The Shadow Price of GHG Reduction in Corn Ethanol Plants

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  • Wamisho, Kassu
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    Abstract

    This article examines the cost of reducing CO2 emissions in a sample of recently built dry-grind corn ethanol plants. The analysis estimates a translog minimum value function that represents both the minimum cost and the minimum CO2 emissions for given levels of ethanol production. The results indicate that the average plant is able to reduce GHG emissions by 36 percent relative to the level under cost minimization, but production costs are 22 percent higher. The reallocations by which these emissions reductions are achieved are primarily the substitution of wet for dry distillers grains, with the corresponding reduction in the use of natural gas and electricity. To move from least cost to least emissions allocations, ethanol plants would on average produce 25 % more of wet byproduct and 47% less of dry byproduct. Comparing results across observations, the estimated shadow cost of emission abatement ranges from $86 to $190 per ton of CO2, with average value of $124 per ton. This implied shadow cost of abatement can be used as a bench mark for pollution trading and serves to assess the potential response to biofeul regulations.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington with number 124719.

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    Date of creation: Jul 2012
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    Handle: RePEc:ags:aaea12:124719

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    Keywords: GHG abatement; shadow price of abatement; corn ethanol; Environmental Economics and Policy; Resource /Energy Economics and Policy;

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    1. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
    2. Cuesta, Rafael A. & Knox, C.A. & Zofío, José Luis, 2007. "Environmental Efficiency Measurement with Translog Distance Functions: A Parametric Approach," Working Papers in Economic Theory 2007/02, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    3. Welch, Eric & Barnum, Darold, 2009. "Joint environmental and cost efficiency analysis of electricity generation," Ecological Economics, Elsevier, vol. 68(8-9), pages 2336-2343, June.
    4. Fare, Rolf & Grosskopf, Shawna & Noh, Dong-Woon & Weber, William, 2005. "Characteristics of a polluting technology: theory and practice," Journal of Econometrics, Elsevier, vol. 126(2), pages 469-492, June.
    5. Pittman, Russell W, 1983. "Multilateral Productivity Comparisons with Undesirable Outputs," Economic Journal, Royal Economic Society, vol. 93(372), pages 883-91, December.
    6. Lauwers, Ludwig, 2009. "Justifying the incorporation of the materials balance principle into frontier-based eco-efficiency models," Ecological Economics, Elsevier, vol. 68(6), pages 1605-1614, April.
    7. Sesmero, Juan P. & Perrin, Richard K. & Fulginiti, Lilyan E., 2010. "Environmental Efficiency Among Corn Ethanol Plants," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61650, Agricultural and Applied Economics Association.
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