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Opportunity for Profitable Investments in Cellulosic Biofuels

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  • Babcock, Bruce A.
  • Marette, Stephan
  • Treguer, David

Abstract

Research efforts to allow large-scale conversion of cellulose into biofuels are being undertaken in the US and EU. These efforts are designed to increase logistic and conversion efficiencies, enhancing the economic competitiveness of cellulosic biofuels. However, not enough attention has been paid to the future market conditions for cellulosic biofuels, which will determine whether the necessary private investment will be available to allow a cellulosic biofuels industry to emerge. We examine the future market for cellulosic biofuels, differentiating between cellulosic ethanol and ‘drop-in' cellulosic biofuels that can be transported with petroleum fuels and have equivalent energy values. We show that emergence of a cellulosic ethanol industry is unlikely without costly government subsidies, in part because of strong competition from conventional ethanol and limits on ethanol blending. If production costs of drop-in cellulosic biofuels fall enough to become competitive, then their expansion will not necessarily cause feedstock prices to rise. As long as local supplies of feedstocks that have no or low-valued alternative uses exist, then expansion will not cause prices to rise significantly. If cellulosic feedstocks come from dedicated biomass crops, then the supply curves will have a steeper slope because of competition for land.

Suggested Citation

  • Babcock, Bruce A. & Marette, Stephan & Treguer, David, 2012. "Opportunity for Profitable Investments in Cellulosic Biofuels," Staff General Research Papers Archive 34900, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:34900
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    1. Amani Elobeid & Simla Tokgoz & Dermot J. Hayes & Bruce A. Babcock & Chad E. Hart, 2006. "Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment, The," Center for Agricultural and Rural Development (CARD) Publications 06-bp49, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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    2. Rosburg, Alicia & Miranowski, John & Jacobs, Keri, 2013. "Cellulosic Biofuel Supply with Heterogeneous Biomass Suppliers: An Application to Switchgrass-based Ethanol," Staff General Research Papers Archive 36359, Iowa State University, Department of Economics.
    3. Dumortier, Jerome & Kauffman, Nathan & Hayes, Dermot J., 2015. "Uncertainty and Time-to-Build in Bioenergy Crop Production," ISU General Staff Papers 201501010800001019, Iowa State University, Department of Economics.
    4. Bamiére, Laure & Martinet, Vincent & Gouel, Christophe & Le Cadre, Elodie, 2011. "Stochastic Viability of Second Generation Biofuel Chains: Micro-economic Spatial Modeling in France," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114238, European Association of Agricultural Economists.
    5. Rosburg, Alicia & Miranowski, John & Jacobs, Keri, 2016. "Modeling biomass procurement tradeoffs within a cellulosic biofuel cost model," Energy Economics, Elsevier, vol. 58(C), pages 77-83.
    6. Dumortier, Jerome & Kauffman, Nathan & Hayes, Dermot J., 2017. "Production and spatial distribution of switchgrass and miscanthus in the United States under uncertainty and sunk cost," Energy Economics, Elsevier, vol. 67(C), pages 300-314.
    7. Palatnik, Ruslana Rachel & Freer, Mikhail & Levin, Mark & Golberg, Alexander & Zilberman, David, 2023. "Algae-Based Two-Stage Supply Chain with Co-Products," Ecological Economics, Elsevier, vol. 207(C).
    8. Kassu Wamisho Hossiso & Aaron Laporte & David Ripplinger, 2017. "The Effects of Contract Mechanism Design and Risk Preferences on Biomass Supply for Ethanol Production," Agribusiness, John Wiley & Sons, Ltd., vol. 33(3), pages 339-357, June.
    9. Benoit Gabrielle & Yuanzao Zhu & Stephan Marette & Vincent Martinet, 2016. "Cost-benefit analysis of first-and second-generation biofuels based on an economic valuation of life-cycle impacts," Post-Print hal-02282258, HAL.
    10. Rosburg, Alicia Sue, 2012. "Essays concerning the cellulosic biofuel industry," ISU General Staff Papers 201201010800003732, Iowa State University, Department of Economics.
    11. Wamisho, Kassu & De Laporte, Aaron & Ripplinger, David, 2015. "Biomass Contracts for Ethanol Production: The Role of Farmer’s Risk Preferences," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205703, Agricultural and Applied Economics Association.
    12. Elodie Le Cadre & Frederic Lantz & Pierre-André Jouvet, 2011. "The bioenergies development: the role of biofuels and the C02 price," Working Papers hal-02505389, HAL.
    13. Dumortier, Jerome, 2013. "Co-firing in coal power plants and its impact on biomass feedstock availability," Energy Policy, Elsevier, vol. 60(C), pages 396-405.
    14. Dumortier, Jerome, 2015. "Impact of agronomic uncertainty in biomass production and endogenous commodity prices on cellulosic biofuel feedstock composition," IU SPEA AgEcon Papers 198707, Indiana University, IU School of Public and Environmental Affairs.
    15. Elina Bryngemark & Patrik Söderholm, 2022. "Green industrial policies and domestic production of biofuels: an econometric analysis of OECD countries," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 24(2), pages 225-261, April.
    16. Dumortier, Jerome, 2014. "Impact of different bioenergy crop yield estimates on the cellulosic ethanol feedstock mix," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 171168, Agricultural and Applied Economics Association.

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