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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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    File URL: http://purl.umn.edu/126862
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    Bibliographic Info

    Paper provided by International Association of Agricultural Economists in its series 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil with number 126862.

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    Date of creation: 2012
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    Handle: RePEc:ags:iaae12:126862

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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. 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.
    2. Cuesta, Rafael A. & Lovell, C.A. Knox & Zofío, José L., 2009. "Environmental efficiency measurement with translog distance functions: A parametric approach," Ecological Economics, Elsevier, vol. 68(8-9), pages 2232-2242, June.
    3. Perrin, Richard K. & Fretes, Nickolas F. & Sesmero, Juan Pablo, 2009. "Efficiency in Midwest US corn ethanol plants: A plant survey," Energy Policy, Elsevier, vol. 37(4), pages 1309-1316, April.
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    6. 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.
    7. 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.
    8. 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.
    9. Ball, V. Eldon & Lovell, C.A. Knox & Luu, H. & Nehring, Richard F., 2004. "Incorporating Environmental Impacts in the Measurement of Agricultural Productivity Growth," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(03), December.
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