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The bioenergies development: the role of biofuels and the CO2 price

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  • Pierre-André Jouvet
  • Frédéric Lantz
  • Elodie Le Cadre

Abstract

Reduction in energy dependancy and emissions of CO2 via renewables target in the European Union energy mix and taxation system might trigger bioenergy production and competition for biomass utilization. Pretreated biomass could be used to produce second generation biofuels to replace some of the fuels used in transportation and is also suitable as feedstock to produce electricity in large quantities. This paper examines how the CO2 price affects choices of biomass supply in the power sector and its consequences on the profitability of second generation biofuel units (Biomass to Liquid units). Indeed, the profitability of the BtL units which are supplied only by biomass is related to the competitive demand of the power sector driven by the CO2 price and feed-in-tariffs. We propose a linear dynamic model of supply and demands. On the supply side, a profit-maximizing torrefied biomass sector is modelized. The model aims to represent the transformation of biomass in biocoal which could be sold to the refinery sector and the power sector. A two-sided (demanders and supplier) bidding process let us to arrive at the equilibrium price for torrefied biomass. The French case is used as an exemple. Our results suggest that the higher the CO2 price, the more stable and important the power sector demand. It also makes the torrefied biomass production less vulnerable to uncertainty on demand coming from the refining sector. The torrefied biomass co-firing with coal can offer a near-term market for lignocellulosic biomass, which can stimulate development of biomass supply systems. The torrefied biomass demand can be triggered by the power sector for a low cost of CO2 and until no investment in gas power plants is necessary to replace the decommissioned nuclear power plants. Over 2020, the demand for torrefied biomass from the power sector could be substituted by the refining sector one if the oil price goes up. Thus the green power production could pave the way to BtL production.

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Bibliographic Info

Paper provided by INRA, Economie Publique in its series Working Papers with number 2011/02.

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Date of creation: 31 Apr 2011
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Handle: RePEc:apu:wpaper:2011/02

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Keywords: Bioenergy; CO2 price; Refinery market; Electricity market; Optimization;

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  1. Babcock, Bruce A. & Marette, Stephan & Treguer, David, 2012. "Opportunity for Profitable Investments in Cellulosic Biofuels," Staff General Research Papers 34900, Iowa State University, Department of Economics.
  2. Levin, Todd & Thomas, Valerie M. & Lee, Audrey J., 2011. "State-scale evaluation of renewable electricity policy: The role of renewable electricity credits and carbon taxes," Energy Policy, Elsevier, vol. 39(2), pages 950-960, February.
  3. Fan, Lin & Hobbs, Benjamin F. & Norman, Catherine S., 2010. "Risk aversion and CO2 regulatory uncertainty in power generation investment: Policy and modeling implications," Journal of Environmental Economics and Management, Elsevier, vol. 60(3), pages 193-208, November.
  4. Hansson, Julia & Berndes, Gran & Johnsson, Filip & Kjrstad, Jan, 2009. "Co-firing biomass with coal for electricity generation--An assessment of the potential in EU27," Energy Policy, Elsevier, vol. 37(4), pages 1444-1455, April.
  5. Quariguasi Frota Neto, J. & Bloemhof-Ruwaard, J.M. & van Nunen, J.A.E.E. & van Heck, H.W.G.M., 2006. "Designing and Evaluating Sustainable Logistics Networks," ERIM Report Series Research in Management, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasm ERS-2006-003-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  6. Kocoloski, Matt & Michael Griffin, W. & Scott Matthews, H., 2011. "Impacts of facility size and location decisions on ethanol production cost," Energy Policy, Elsevier, vol. 39(1), pages 47-56, January.
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